This Week in Barrons – 1-3-10:
Thoughts – Happy New Year to all…And the Beat Goes on…
Each year we try and make a few predictions about the upcoming year. And each year I always look back and compare:
Example #1: “Little Johnny” takes apart leftover firecrackers from the Fourth of July, puts them in a model airplane paint bottle and blows up a red ant bed.
1967 - Ants die.
2009- ATF, Homeland Security and the FBI are all called. Johnny is charged with domestic terrorism. The FBI investigates his parents - and all siblings are removed from their home and all computers are confiscated. Johnny's dad is placed on a terror watch list and is never allowed to fly again.
Example #2: A boy and his dad go fishing one evening. Dad builds a fire on the beach and drinks 3 beers. The boy talks "man talk" with his father, and they fish and bond as friends sharing a night of fishing, and chatting.
1967 - Dad puts out the fire, cleans up the area, all drive home with a few nice fish and a lot of great memories
2009 - Dad is arrested for building a fire on the beach, and fined for having a beer in a public place.
President Obama ran on a platform of change – and we certainly have. And nowhere has the change been as dramatic as in the world of "money".
- I think the recession gets worse – a lot worse. Right now 75% of all the economic activity we see is Government printed money sloshing around the world. This year is an election year and you can bet they are going to pour as much money as Bernanke can possibly print into the economy, hoping that they can make it look good enough that you forget the pain of 08/09.
- Gold runs to 1500, then to 2500.
- We will be in another war.
- The DOW will trade below 5000
- Inflation will come and interest rates will top 12%
- Unemployment will continue higher - hitting 15% officially and 25% unofficially.
- One of the major banks will fail
- The FDIC will declare itself insolvent
- More Foreign nations will default on their sovereign debt
- And After a brief rally the dollar will continue to fall.
Okay – in what timeframe? How much of it is going to occur in 2010, while the rest takes place between 2011 and 2012?
- I think "they" will keep the market humming along for as long as they can into 2010. It's not unreasonable to think they clear DOW 11K in the first quarter – but by the end of 2010, we will be flirting with 7500 to 8500.
- Gold will make it to about 1700 by the end of 2010.
- The EU will struggle to stay together while fringe players like Greece, and Ireland do all and anything they can to not declare outright bankruptcy.
- At some point in 2010, the US or Israel will take a first action against Iran.
- DOW below 5,000 and true inflation hits in mid 2011
So, 2010 is going to be an odd year. One where every logical bone in your body would say "we have to crash, everything's terrible" but then you think again and know Bernanke and the Fed will jack so much money into the system it "has" to give the appearance of working, even if just for a short while.
So, what do you do about it?
- Buy gold and silver on dips.
- Trade the market long for as long as it's working and then go "short" when they can no longer keep the charade alive.
- Build a personal nest egg – keeping at least 2 months living expense money "at home" in a personal safe.
- Crime will begin to soar – so you might want to consider “learning” the proper use of a gun. I know that sounds all "dire" and all, but hey, the reality is that as this economy slowly grinds lower and lower, all manner of crime will escalate.
2010 is going to be even more bizarre than 2009 if you can imagine that. We are in the end game of a very good plan. Food shortages are going to start making headlines around the world. Politicians will sign more bills they haven't read at 11:59 at night, to an empty chamber. We'll toss out a lot of lousy politicians in November, and it will be a start. A good old-fashioned depression will bring a stop to this – and the good news is that if you play your cards right, you should be able to come out of it in good shape.
Now onto the Market:
For two weeks the market was flat then on Thursday a round of selling hit as the dollar ramped higher, and we lost a hundred points for the first time in over a month – was that the start of something bad? First off, please realize that the market doesn't belong at 10450, and is there only because the Presidents working group have pushed it there. Now, when they come back on Monday are they going to get busy buying, or get busy selling? It's my guess that there are a lot of funds that wanted to sell in December but didn't so they could postpone their tax liability from April, 2010 to April, 2011. So they will probably be selling during the first week of January. But on the other hand there's a lot of "new year money" that a lot of funds will be looking to employ. So it will be interesting to see who gets the upper hand. My bet is that the first week might be choppy, but then we see some form of move "up" as they get ready to hear earnings, and as is the case, stocks often run up into their earnings reports. So, we feel that there are gains coming in January, we just don't know if they'll start right off the bat, or if we'll have some chop first, then a move up.
Now would could throw a ‘wrench into the works’ is if the dollar were to stage a big counter trend rally. The major players have been borrowing dollars for virtually nothing and then using them to buy up tangible assets. As long as the dollar stays weak, it all works. But if the dollar soars, they have to return those dollars at a higher price, and that means selling some assets to "get" the dollars. This is why each time the buck bounces, stocks fall. If the dollar was to really surge, it would indeed put a whoopin’ on the stock market, and even the FED wouldn't be able to stem that tide. So, the wild card here is indeed the dollar.
We feel that there will be market gains in the first quarter barring a massive dollar surge, but we also feel that sometime into the second quarter the reality creeps in again and the wheels start coming off. So we should be leaning long for most of January/ February even March, and then reassessing for the possibility of scaling into shorts and puts from then on out.
Let me wish all of you a Happy New Year, and make sure you share it with the people that matter.
I might take KOPN at 5 or slightly over
I might take DRIV at 28.10
I might take ARTG over 5.00
I might take CIEN over 11.50
I might take ELGX at 5.50
I might take WFR at 14.05
I might take SYNM over 2.50
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.
Remember the Blog http://rfcfinancialnews.blogspot.com/
Until next week – be safe.