This Week in Barrons – 3-28-10:
"We can't expect the American People to jump from Capitalism to Communism, but we can assist their elected leaders in giving them small doses of Socialism, until they awaken one day to find that they have Communism." … Nikita Khrushchev
It only seems fitting that this week we pushed Obama-care on the American people who soundly rejected it.
A question came in from a reader: “When do you think the Fed will STOP supporting the market. Couldn’t they keep supporting it for the next several years until the economy truly picks-up?”
Great question. In my view - the market is trying to take the most money from the most people at any one time. So, with that in mind, the market will usually move in the opposite direction of the bulk of the people. In fact on CNBC on Thursday an NYSE floor-person said: "When the public finally comes in, that's exactly when you should be selling because they always come in at the top. The public normally buys at the very top and sells at the very bottom."
Now the Fed and Government want the market up to give the illusion that the economy is working and things are getting better. Wall Street wants the market up so that it pulls in money that’s on the sidelines and what is currently in Treasuries. The U.S. would also like the market up so that people don't launch even more "tea parties" and demonstrations concerning the way American has been squandered. However, once the entire agenda is in place – both elements are prepared to ‘pull the plug’ because laws will be in place that will make people even more dependant upon the Government’s programs – and playing a ‘short market’ is meant for the pros rather than the amateurs.
The market is being propped up in order to inspire confidence and keep the population from popular revolt while they jam spending, healthcare, bail-outs, etc down our throats. But, there comes a point in every market rally, when the collective "risk aversion" of so many people, stops them from participating in any more buying. Then, there comes another moment when they decide that they should "sell" before the market rolls over and takes their money. Can Wall Street and Uncle Sam, hold off the forces of millions of people trying to take money "out" versus putting it in? Currently money has been coming out of the market, volumes are incredibly low, gains are painfully slow and always on the heels of futures buying via the Fed. I believe the coming market fall could be very interesting, and you could see a massively fast and brutal plunge.
However, do we know WHEN it's not in their interest to continue to keep the market up – NO! When you have ‘floor traders’ saying that the “market isn’t free” – it’s at that point that technicals, VIX readings, moving averages, earnings, foreclosures, and bankruptcies – they all don’t matter any longer. The market has been burning a huge amount of short sellers and put buyers for the better part of several months now; however, the participation rates are low, funds are running on air - having expended their cash, and we are seeing the world back away from American financial assets. If we make it past 11,150, then all bets are off – but I’m still looking for one last feeding frenzy that pushes us up and over 11,000 or so, before the wheels came off.
President Obama's fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation's economic output by 2020, the Congressional Budget Office reported Thursday.
Did you know there's never been a successful economy on earth with debt levels like this? The market itself has been climbing a wall of worry, spurred on by Fed money – and I tend to think we're near the end of it. Monday the market came back a bit, but was very sluggish and actually red during the day. Tuesday was sluggish. Wednesday just barely got us out of red and into green, same with Thursday. Friday we were up 65 and want all the way down to red on news of a possible North Korea sinking of a South Korean vessel.
This market has ignored: Greece, Italy, Ireland, Latvia, Dubai, earthquakes, foreclosures, bank failures, and healthcare. In short, the market has really started to get choppy – up 117 at noon and closing up 5 – which usually spells a change in the wind and – we could be AT or just a couple of weeks away from the ultimate high. We are still leaning long, but taking profits quickly. At some point we'll list all the shorts, puts and ETF's we'll be using to make a fortune when the market falls.
My guess is that we come into this week and see one last concerted push higher. We have a Holiday week ahead of us, which usually means lower than normal volumes, and low volumes mean easy manipulation. But next week we have the “Non-Farm Payroll Report” – simply termed “The Jobs Report” - that is due out on Friday. So, if it's poor, we potentially come into Monday April 5, looking at a rapidly weakening market. And, if it's strong because of the 160K census workers the government hired, then Monday April 5th could potentially be a big up day, which potentially spells the end. In either event, I think that between today and say April 7th, 8th or 9th we will experience the "top" of the long run since last March. I know that's a bold statement, and I could end up eating crow – but that’s my thinking as of now.
We’re left only holding JCI and NETL on the long side. We have JCI at 32.79 with a hard stop at 32.90, and NETL at 30.00 with a hard stop at 29.74. I’m not going to hold JCI into a losing position. GLW almost broke 20, but backed away – because I was gun shy about holding it over the weekend.
If you’d like to view my actual stock trades - feel free to sign up as a twitter follower – “taylorpamm” is my nickname on Twitter – fyi.
Until next week – be safe.