Thoughts – I truly wish it was a Merry Christmas for all…
I'm writing this as I review real estate offerings in various coastal areas in Florida and notice that the prices are beginning their second leg of a decent (with more to come in my opinion). I’m struck by the lack of traffic at the malls, and the amazing amount of small business that aren't there any more. I’m listening to every talking head on CNBC telling me that the next two years will be years of increased merger and acquisition (M&A) activity – and them thinking that this is a ‘good thing’. What if the majority of ‘sellers’ are selling because they “HAVE TO” and not because they “CAN”? Doesn’t all of this tell you that your ability to actually ‘GET’ the price that you think you should be getting for your widget, your house, or your business is eroding very, very quickly – and this increased M&A activity could be an act of ‘survival’ and not one of ‘growth and prosperity.’
A couple facts to take us into the New Year:
- 10%+ unemployment is draining states' unemployment-compensation funds so fast that 40 state programs could go broke within two years, and will need $90B in loans to keep issuing benefit checks
- And while continuing unemployment claims dropped by 127K to under 5.1M, emergency unemployment compensation (for people who have exhausted regular benefits) rose by 142K to 4.4M, up from just 1.5M a year ago - a sign that people who have lost their jobs are having an especially hard time finding new ones.
- And remember: Stocks FALL MUCH FASTER than they rise!
Remember that last point – because there will come a time in the very near future that we will recommend shorting the market, or buying “Puts”.
For those reading this that are afraid of going short – let me describe the elements of a short sale:
- A short sale simply means that if the stock goes DOWN you will make money.
- You start by “borrowing” say 500 shares of XYZ from your broker – and sell it on the open market for say $50 per share (this is all done electronically) – you place a "sell short" order for 500 shares of XYZ at market. In a matter of moments you will have sold XYZ. For selling it, your account will take in the proceeds – 500 shares at $50 = $25,000.
- Now you sit and wait, and in a matter of a month, XYZ is now 40 dollars a share. You decide that it probably won't go lower, and you want to "cover your short". All you do is "BUY" 500 shares of XYZ at market. The moment you do, the brokerage will get back the 500 shares you borrowed from them and it's all a done deal.
- The transaction is finished - but look at what happened: You sold 500 shares at $50 = and took in $25,000. Then you bought 500 shares a month later to close out your short – but at $40 = so you spent $20,000. The difference of $5,000 is yours to keep.
It's our opinion that there's going to be a tremendous shorting opportunity coming at us in 2010. With headlines like this: "The number of borrowers that fell behind on their mortgages - including the most creditworthy - rose in Q3. And the percentage of current and performing mortgages dropped for the sixth consecutive quarter. Those that fell behind on their prime mortgage payments more-than doubled to 3.6% from a year ago. Such troubles could mount as banks and thrifts remain unable to match modifications with the number of struggling borrowers who need help.” You don’t have to be a rocket scientist to know that things are actually getting worse not better, and one day the market will align itself with that reality. That means stocks will fall, and the people that get rich off it will be the ones that understand shorts and buying puts.
Moving to the market itself:
So, they ran us sideways and up into Christmas, the next question is, what about New Years week? My guess is that we'll be pretty flat, with certain individual stocks moving up on their own merits – but a wholesale sell off, is sort of off the table, because who's going to want to pay the tax penalty of selling now, when they can sell in January if they want, and push the tax burden out to 2011?
For weeks AMAT has been playing around in the 12 - 14 area with 14 acting like a brick wall. It simply got repelled each time it got there. But with Thursday's close "at" 14.00 – if AMAT were to climb up and over 14.15 – I would consider that a pretty good buy in area, and AMAT could reward us.
The commodity plays are still acting well as are some of the technology plays. We thought that if CTXS ever got over 40.00 it would probably be a runner and tack on a few bucks – and sure enough it 40, we hopped in and it hit a high of 42.34. Not bad work in two days – and I think it's got some more in it.
As you appreciate your holidays, I hope you have a wonderful time with family and friends. Potentially you can find a way to give something to someone who needs it. They will appreciate it, and it will give you something positive in return – I guarantee it.
Have a joyous and prosperous New Year!
We sold our SPY’s and our CY’s for a handsome profit – so we’re sitting with:
CTXS at 40.04 Hard Stop at 40.44
ANR at 40.04 Stop at 43.45
CLR at 40.56 Stop at 41.90
AMAT over 40.15
That said, we're looking at DRIV, CLD, WFR, STEC, CIEN and a couple others.
We were tempted to sell some ANR (as it opened at the 46 level), but I resisted – it’s hard to "sit tight" when you're looking at 5 dollars per share in gains!
We will be buying the GDXJ’s / and SGOL’s – but wait until gold settles a bit here – also we’ll be looking at the Silvers … PAAS / SLW – etc.
And we have about 70% of our money at work in the 401k’s – the rest in cash.
Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.