Misery Loves Company:
This week was a little bit of a travel week for me – and as I settled back into my room on Friday night – I noticed that Suze Orman was on. For those who don't know who she is, USA Today called her a ‘one-woman financial advice powerhouse’. She is undeniably America's most recognized expert on personal finance. Combine her with Jim Cramer – and I’ve spent a fair amount of time (over the years) denouncing their collective wisdom as an absolute train wreck. Suze Orman shocked me on her show when she said: "Up until 2007, I thought I had it all figured out. But then it all went horribly wrong. What I didn't take into consideration was that - I trusted the people at the top to be giving us the truth. But we found out that the truth wasn't there, and we were in a time of lies and corruption". So here is America’s most recognized expert on personal finance telling everyone that what she and the rest of us have been getting fed is a pack of financial lies. For the next hour she told people: (a) get back to the basics, (b) get out of debt, (c) train your kids to get out of the "buy me this" syndrome, (d) don't buy stuff you can't afford, and (e) save your money because there are very bad times ahead. This was such a turn around from the last time I heard her speak that I said: “Misery Loves Company!” Don’t get me wrong – Suze Orman knows more about the taxes on 401K's and Roth IRA’s than my accountant. Suze knows more about FICO scores than I'll ever know in my lifetime. My point to all of the above is that it’s one thing for someone to make a mistake, but it's very different when you openly mislead people. Suze Orman is now saying what we’ve been saying for years - 90% of the financial information that you are seeing and hearing is misleading information. If this economic crisis has taught us anything, it is that you have to listen and decide for yourself the financial elements that make sense for you. Sometimes it's not easy going against the grain. Welcome Ms. Orman – welcome back to the land of the living! In early 2001, we decided Gold was to be the ultimate investment, and we bought as much as we could afford. Then in 2007, we decided that Silver was the next best investment, and again we bought as much as we could afford.
To the fundamentals:
- The percentage of the population working full time now stands at 47.2%. We need to go all the way back to 1975 to find a ratio that low in October. So The Ben Bernanke, with the working population and wages being stagnant or down - Where’s the Growth?
- Of the 280 most profitable companies in the U.S., 78 paid no federal income tax in at least one year over the last three, and 30 reported a cumulative negative income tax over the period. The country is in debt to it's eyeballs, and one of it's biggest companies GE pays NO taxes, yet it's CEO trots around with Obama and preaches jobs creation, while shipping his own jobs over to China.
- U.S. investors have pulled $80B out of equity funds this year, but this has been more than offset by $200B in corporate stock buybacks. With the cost of debt being very low, and the cost of equity very high, many find it logical to float debt to repurchase stock. Did you know that while boosting their share prices by buying so much of their own stock, we’ve also created the largest corporate debt load in US history? Companies have borrowed heavily on the heels of Bernanke's 0% interest, but (like Greece) one day it's going to have to be repaid.
And then there’s Goldman Sachs with over 30 alumni stationed in power positions all around the globe, we’re seeing:
- MF Global, run by John Corzine (a Goldman alum – who helped bankrupt New Jersey) is now in the hole for $1.6 Billion, and we all know he won't go to jail.
- Gary Gensler (also from Goldman), the chairman of the U.S. Commodity Futures Trading Commission under President Barack Obama – overseeing over $5 Trillion in commodities trading each day. Mr. Gensler worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of AIG and has resulted in the largest taxpayer bailout in US history. Gensler also worked on the deregulation of electronic energy trading, which led to the downfall of Enron, and supported the Gramm-Leach-Bliley Act, which allowed American banks to become "too big to fail"
Do you think it's possible that what these people do as far as global economic policy might all be in favor of shielding, abetting and strengthening Goldman?
The Market:
Greece is toast. The EU is disintegrating. Each hour of every day brings a new scheme, a new plan, or a new idea. Nothing they are doing is going to get the debts repaid, thus at some point default and defection become the fact.
Right now there are several forces tugging at us, and that makes it a bit harder to figure out the short-term direction.
- U.S. investors have pulled $80B out of equity funds this year, but this has been more than offset by $200B in buybacks. It’s obvious that John Q. Public is scared over global events. However, insiders are simply using the cheapest credit rates in history to juice their stock. If you're a CEO and you have 10 million shares of company stock, why not go borrow a billion dollars, and buy company stock? The stock rises making you richer, and if something happens the Company takes the hit.
- Each hour, some form of news comes out of Europe concerning Greece and also a bankrupt Italy - making for a huge market chop.
- It’s the Holiday season, where November and December have historically been the two best months for the fund managers to make their giant year of end bonuses. So fund managers want the market up, and the under performing ones will go for broke putting the last of their money to work.
- Quantitative Easing 3 (QE3) is on the way. There's no question Bernanke will unleash more stimulus, starting with buying more mortgage backed securities (MBAs), and from there, who knows how much he'll print and spend.
- Finally, each time the world is in an economic funk, we create a war. Tensions over Israel and Iran are now white hot – so watch for missiles flying sometime soon?
Right now it looks like we might be in for some short term selling, but they'll offset that with random, well timed rumors that will reverse any selling for a short-time – so please be cautious. If we can get the DOW and S&P to hold over their 200-day moving averages, we could see more upside. But if these averages hold as upper resistances, then we should be moving lower. Right now - my guess is that we end the week lower than we start it.
Tips:
We trade stocks. We try to trade based upon fundamentals, but there are none. We try to trade on based upon the technicals, but because we're in a world of rumors, designed to move things "their way" – we can’t do that either. We’re stuck trading on the insanity of the moment, and unfortunately it’s working! The moment we see the dollar dropping we buy materials and commodity companies like ANR, CLF,etc. If the dollar drops, U.S. stocks move up, and materials and commodities move the most. Like I said last week - desperate funds are going to seek high “alpha” stocks like: Apple (AAPL), Amazon (AMZN), Caterpillar (CAT), and Deckers (DECK). Funds that need dramatic returns won’t take chances with regular companies – so also look at Priceline (PCLN). And consider the technology ETF the XLK. Although it's not a rocket, the Holiday season is a big tech time and if Apple or Priceline are too expensive, the XLK may fit in nicely.
We stopped out of many of our short-term holdings (with gains) last week, and we’re left holding:
- GLD at 157.49 – now at 170.75, and
- SLV at 28.00 – now at 33.25.
If things roll over consider playing the short side using HDGE.
To follow me on twitter and get my daily thoughts and trades – my handle is: “taylorpamm”.
Please be safe out there!
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