‘I Heard the Bells (of the Cash Register) on Christmas Day…’
Wall Street loves Santa Claus, but Santa has been very elusive this year. The Ben Bernanke, knowing that he's going to have to juice Europe to keep them from collapse, has been stubborn about giving away free money. So, let's just examine why we gained those 300+ points this past week. Not long ago the ECB (European Central Bank), with help from our Federal Reserve, told the Euro region that they'd lend banks all the money they need, at about 1%, for the next 3 years. Now everyone knew that a lot of European banks needed this kind of infusion, and we thought that about 250 banks would come calling. Well, when the lending window opened and 523 banks lined up to borrow $645 Billion we were all taken by surprise and the markets rejoiced. But why would the markets be so happy to see all those banks needing so much help? Well, what’s really needed is that Spain, Italy and the other PIIGS be able to sell bonds, so they don't go broke. And because of their legal charter, the ECB cannot directly lend to countries. So what better than to have the banks borrow all the money, and then have the BANKS lend to the countries by buying up all the sovereign bonds. That way the banks get income, and the countries get their badly needed liquidity. Now, my guess is that ‘NONE’ of this was a loan but rather it was all ‘free money’. This effort saved the banks, and it might just kick the sovereign debt problem down the road a bit. It might let the banks be a little bit more footloose with lending, since they know that if they lend out the money they got at 1% for say 5%, they'll make a sweet profit, and if no one pays them back – what the heck the FED will give them more.
Anyway – as we stroll around the world – not much has changed – we see:
- The Bank of Japan lowering its outlook for the economy for the second month in a row, saying that the pick-up in activity has paused, and that there are spillover risks from the U.S. and the Eurozone. Data released earlier showed Japan's exports fell 4.5% in November from a year earlier, the second consecutive month of declines.
- Gas costs have risen dramatically for consumers. Although pump prices have been falling, consumers have spent more money than ever on gasoline this year. Based on recent demand trends, consumers will have spent $481B on gas in 2011 vs. $389B last year. Therefore, each U.S. household will have spent an average of $4,155 on gasoline, 8.4% of an average family's annual income.
- The November Existing Home Sales shows contract failures at an alarming rate. 33% of National Association of Realtor members report seeing a cancellation caused by a declined mortgage application contract last month, compared to only 9% a year ago.
The market had that huge up day this week. The right people were told that the ECB was going to push half a trillion dollars into the Euro zone. We gapped open in the morning – so that the only people that could take advantage of the entire move were Senators, and naturally Goldman Sachs. The rest of the week was spent verifying that we could stay at these levels for at least the short term. I think they'll add a bit more to the pot early this week, then it might tail off some. We should get a "January effect" heading into the new year, where pension and fund managers dump their new year money into the best performers of the previous year, looking to get a nice fat first quarter gain.
I'm going to wrap this up with a holiday wish – and truly wish you all the very best. Merry Christmas to all – and to ALL a Good Night!
2011 was an interesting year indeed. I always like to review and compare our results with others – mostly in order to learn. It appears that we’re going to end up the year up around 24%. The famed John Paulson is off a wicked 30% as we close out the year. The major difference here is that Paulson buys and holds for months at a time, and this year our timeframe was often days. In any event it's not going to get easier in 2012. The over riding debt issues remain. The European crisis is still there, not to mention: North Korea, Iran, and the Presidential race. There will be no shortage of volatility in 2012.
This week we bought the SPY which is the proxy for the S&P 500. We also purchased United Healthcare (UNH), J.C. Penny (JCP) and a handful of others (see below), which are doing well for us considering we bought them this past week. But there's going to be some others to consider as we move into the year-end and January.
So right now we’re holding:
- UNH at 50 (currently 51.35),
- SPY at 124.08 (currently 126.59),
- EP at 25.72 (currently 26.01),
- SE at 30.20 (currently 30.87),
- JCP at 34.05 (currently 35.67),
- HEK at 6.51 (currently 6.95),
- GLD at 159.49, now @ 156.19 - AND
- SLV at 28, now @ 28.30
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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