A resounding 'no'...
A resounding 'no'... What's next for Greece?... More bad news for Yelp... Three-month lows for oil... The shale 'safety net' is vanishing...
More than 61% of Greeks voted "no" in Sunday's referendum on whether to accept the conditions of the latest European bailout.
We've been covering the ongoing crisis in Greece since the start. Despite the sensational headlines to the contrary, we find little has changed today.
First, as we mentioned last week, it's not clear what the "no" vote actually means.
Many in the financial media are suggesting the vote means Greece is now likely to leave the euro.
But while a majority of Greek citizens did vote to reject the current proposal from the country's European creditors, polls still show most Greeks want to stay in the European currency union (or "eurozone").
And rather than moving the country closer to a euro exit, it appears Greek Prime Minister Alexis Tsipras and his government believe the vote gives them a stronger negotiating position. From the Wall Street Journal...
Greeks' resounding rejection of creditors' demands for pension cuts, value-added tax increases, and other austerity measures is likely to bolster the conviction of the Athens government that it can now successfully press its creditors for a better bailout deal that includes fewer painful fiscal measures and more debt relief.
"I'm fully aware that the mandate that I was given [by voters] is not for a rupture with Europe, but a mandate boosting our negotiating strength for reaching a sustainable deal," Mr. Tsipras said in a televised message late on Sunday.
Reports are now calling July 20 the "make or break moment" for Greece and the eurozone. More from the Journal...
That day, Greece is due to pay €3.5 billion ($3.9 billion) to the European Central Bank [or "ECB"]. The ECB is now keeping Greek banks in a state of suspended animation: alive, but unable to get their hands on additional emergency funds beyond the €89 billion they have already taken.
But if Greece misses the July 20 payment, the ECB is widely expected to cut them off entirely. If that were to happen, they would collapse and the government would have to print a new currency to restart them.
In the meantime, reports say Greek banks are running low on cash...
As we reported, Greece closed its banks and imposed "capital controls" last week in an attempt to prevent folks from taking their own money out of the banking system. The move didn't work...
According to news service Reuters, the Greek banking system could run out of money as early as this week without an increase in the Emergency Liquidity Assistance ("ELA") program from the ECB.
As we've discussed, we believe the crisis will likely be resolved with Greece staying in the eurozone.
Not only do most Greeks want to stay, but it's in Europe's best interest as well. While a "Grexit" would likely have minimal economic effect on the rest of the eurozone (Greece makes up less than 2% of the eurozone economy), it would be a public relations disaster. Worse, it could cause the bigger troubled countries, like Portugal, Italy, and Spain, to consider doing the same.
Still, we can't predict the future. Governments often do foolish things. So we'll stay prepared for either outcome. As Stansberry Research Editor in Chief Brian Hunt reminded us last week...
Crazy things happen in the market from time to time. Greece and the rest of Europe could let their disagreement lead to disaster.
In this scenario, world stock markets would likely decline and central banks would respond with giant monetary stimulus. They would pull out the stimulus bazooka. This would set the stage for more gains in stocks. But it would also push the world a little farther down the road to monetary disaster. In other words, stay long stocks, but have your stop losses in place. And make sure to own plenty of gold, which as we've described many times, is your ultimate form of insurance against monetary accidents.
Speaking of gold "insurance," it appears many Greeks agree...
A report from the U.K.'s Royal Mint last week said it has been seeing "twice the expected demand" for gold bullion coins from customers based in Greece. (If you're new to the reasons for owning gold, be sure to check out our free introduction in the Stansberry Research Education Center right here.)
Shareholders of online review site Yelp got more bad news last week...
Longtime readers may recall the Stansberry's Investment Advisory team shorted shares in March. We explained the big problems with the company's business in the April 30 Digest...
The company's business model is questionable, many small-business owners (Yelp's primary revenue source) feel extorted, the company will likely have trouble growing in smaller markets and internationally, and it may face legal challenges...
People also claimed that paying Yelp monthly dues positively influenced their reviews. And business owners who didn't pay suffered the consequences – including "fake" reviews from competitors or people who actually write negative reviews for a fee (which you can find on Craigslist).
In addition, while Yelp is currently operating within the law, one business owner in the Washington, D.C. area is asking the courts to force Yelp to turn over the information of its anonymous reviewers so he can essentially sue them for defamation. The lower courts ordered Yelp to turn over the information... which would be a disaster for the company. After all, how many negative reviews would users give if they knew they could be liable for defamation?
Shares plunged that day following the company's disappointing first quarter earnings report. And because short selling makes you money as a share price falls, Porter's subscribers were up nearly 20% following the news. But as Porter says, short selling isn't easy in a bull market...
Just days later, rumors emerged that the company was working with investment bank Goldman Sachs to "find a buyer." Shares surged 29% in two days, and triggered their stop losses.
Porter's team officially closed the position for a small, 1.4% loss. As they told subscribers in the June issue of Stansberry's Investment Advisory...
It was a disappointing end for a promising short sale. What's particularly frustrating is that the "news" that caused the rally wasn't news at all. Yelp management looking to sell doesn't seem like news... it seems more like common sense.
Yelp has a horrible business model and is failing – even by its own metrics of success. Of course management is looking to sell. If anything, this "news" confirmed the short thesis.
We doubt Yelp will find a buyer, but crazier things have happened...
Last Thursday, the company said its sale process had "stalled," and it had "temporarily decided not to pursue a sale."
Shares plunged more than 10% on the news to hit a new 52-week low. The company's spokesperson had no comment.
We end today's Digest with a quick note on oil...
After trading near $60 per barrel for the past few months, the price of West Texas Intermediate crude oil – the U.S. benchmark – is plunging again. Prices are down nearly 8% to less than $53 as of midday trading today.
In addition to worries about a slowdown in China (the world's second-largest oil consumer) and the crisis in Greece, the market is concerned sanctions could soon be lifted on Iran. From Reuters...
Iran and global powers were trying to meet a July 7 deadline on a nuclear deal, which could bring more supply to the market if sanctions on Iran are eased...
U.S. crude has fallen 10 percent in all over three straight sessions and Brent over 7% in two consecutive days, the biggest rout since January. The slump brought oil out of its narrow trading band of the past three months, risking a deeper slide ahead.
"Even without Greece, China's stock market woes, and Iran priming to hit the market with more barrels, the demand picture in oil has only been OK, while the supply picture has been phenomenal," said John Kilduff, partner at New York energy hedge fund Again Capital. "With these number of bearish elements weighing on the market now, the only thing of support has been the seasonal demand in gasoline, and even that will be going away soon."
If a new leg lower in oil is starting, the timing couldn't be worse for many shale drillers. According to a new report from Bloomberg, the "safety net" that has helped many of them survive is now going away...
The insurance that producers bought before the collapse in oil – much of which guaranteed minimum prices of $90 a barrel or more – is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014.
"A year ago, you could hedge at $85 to $90, and now it's in the low $60s," said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. "Next year it's really going to come to a head."
The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the "emerging risk" of lending to energy companies.
The news is just another reminder that there's still a lot of risk in the oil industry today. While we're bullish on select opportunities, there's likely still a lot of pain ahead for many companies. As Porter explained in the March 13 Digest...
It is far, far too early to go "bargain" shopping in the U.S. oil and gas industry. The sector is facing a huge three- to five-year shakeout as overly indebted producers must continue to produce oil – even at a loss – to generate cash flows to make debt payments. These bad debts will take a long time to wash out.
New 52-week highs (as of 7/2/15): Chubb (CB) and Valero Energy (VLO).
A subscriber asks about opening a brokerage account in today's mailbag. What's on your mind? Let us know at feedback@stansberryresearch.com.
"Hi, I don't have a brokerage account at present. Can you recommend some good ones that don't kill you with fees?" – Paid-up subscriber Michael Schaller
Brill comment: If you're comfortable placing your own trades, most discount brokers – like E-Trade, Fidelity, Charles Schwab, etc. – will work for you. We also recommend you take a few minutes to read through our free report in the Stansberry Research Education Center called "The Beginner's Guide to Opening a Brokerage Account."
Regards,
Justin Brill
Baltimore, Maryland
July 6, 2015
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