RF's Financial News

RF's Financial News

Sunday, January 1, 2012

This Week in Barrons - 1-1-2012

This Week in Barons: 1-1-12:

This Ain’t Your Father’s Market Anymore…

Today’s world is so vastly different from just a couple years ago – “This ain’t your father’s market anymore.” Right now, even the most disinterested of economic followers would tell you that Europe seems to be the big problem. But why is Europe in so much debt? It’s because they implemented socialist programs, that were never financially supported. When I was younger I remember seeing a nice car and saying: “I need to learn what to do, so that I can drive that type of car.” Never did I say: "Boy those people shouldn't have such nice things, they should sell all that and give the money to everyone else". I’m wondering - has the American “dream” become the American “entitlement” state?

Remember those ‘Occupy Wall Street’ (OWS) protestors – and their ‘transformational’ placard: “Everything for Everybody.” Well somewhere along the line some basic concepts were missed – and I’d like to thank one of our readers for reminding me of them:
#1 Life isn't fair. The concept of justice - that everyone should be treated fairly - is a worthy and worthwhile moral imperative, but justice and economic equality are not the same. Or, as Mick Jagger said, "You can't always get what you want." No matter how you try to "level the playing field," some people have better luck, skills, talents or connections that land them in better places. Some also seem to have all the advantages in life but squander them. And others play the modest hand they're dealt and make up the difference in hard work and perseverance. Is it fair – that’s a stupid question?
#2 Nothing is "Free." Protesting with signs that seek "Free" college degrees and "Free" health care make protestors look like idiots, because colleges and hospitals don't operate on rainbows and sunshine. The 53 percent of taxpaying Americans owe you neither a college degree nor an annual physical. There are other things that are not free: overtime for workers, trash hauling, repairs to property, and the food that magically appears on tables. Real people with real jobs earning real dollars are underwriting the OWS temper tantrum.
#3 Your word is your bond. When I see demonstrators advocating eliminating student loans debts, I wonder if they realize that they are advocating precisely the lack of integrity that they decry in others. Loans are made based on solemn promises to repay them. No one forces you to borrow money; you are free to choose educational pursuits that don't require loans, or to seek technical or vocational training that allows you to support yourself and your ongoing educational goals. Also (for the record) being a college student is not a state of victimization. It's a privilege that billions of young people around the globe would die for - literally.
#4 A protest is NOT a party. The issue with OWS protestors is that it’s clear – most are doing it for attention and fun. Serious people in a sober pursuit of social and political change don't dance jigs down streets. Please understand your actions cause your pursuit (as noble as it may be) is being viewed as irrelevant to all that are seeing you.
#5 Finally – there are reasons you haven’t found jobs! The truth? Your tattooed necks, gauged ears, facial piercings and dirty dreadlocks are scary and off-putting. Nonconformity for the sake of nonconformity isn't a virtue. Occupy Reality: Only 4 percent of college graduates are out of work! And if you are among that 4 percent, find a mirror and face the problem. It's not them – It’s YOU!

Now consider what's happening in Europe right now as things have disintegrated to the point of no return. The current push is for all the countries involved - to give up their sovereign rights, and hand them over to a group of technocrats in Brussels. These technocrats will then tell the countries what budgets they can run, and how to form their economic policy. Can that be any clearer? The countries actually will need to give up control of themselves – so that a ‘new world order’ could govern them appropriately – Really?

I remember in 1966 Alan Greenspan writing: “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

So, we look back on 2011 and see things never seen in history.
- The Manipulation of Markets. Everyone from Jimmy Rogers to Marc Faber has declared that we do NOT have free markets. As MF Global literally ‘looses’ people’s money – John Corsine (the CEO) serves no jail time.
- We’ve had volatility this year, as never seen before. We had 40 - 90% days this year. That means that there were 40 days when 90% of all the trades and all the volume was to one side, whether up or down. Now from 1996 to 2006, there were only 28 of those sorts of days total - about 3 a year. In 2011 we had 40 such days!

OK in 2012 we know that the world’s economies are on the ropes, and there are only TWO ways out:
- Outright default, where everyone just writes off their debts, the economies implode for a period, and then everyone rebuilds from the ashes. Now once everyone defaults, the first thing to do is to print money in order to rebuild.
- Secondly, the economies can print money as fast as they can in order to paper over the troubles, and put off the pain of default. That always brings the inflation problem.
- The bottom line is that in either situation, whether they print now, or print after default, a "whole lot of money" is going to be created.

2012 is set to go down as one of the most fascinating years in American history. We have an election and our own fiscal nightmare to take care of. Will the billions that our Fed printed and sent to Europe stave off the liquidity problem at the banking level? After all our FED gave 523 banks over half a trillion dollars at basically 1%. These same banks can take that money and buy Italian bonds paying 7%. Italy will then benefit because they won't have to default. The bankers will benefit by getting 6% for "free", and if they leverage that and loan it out, they could light an economic fire. The question is: Will the bankers loan out the money – that is the big question?

The Market
So in 2012 if you can't just park your money in the market, where can it go? Housing? Nope - as much as they've called a bottom in housing about 30 times, housing continues to fall, and foreclosures still mount. In our world, the only thing that still makes sense is short term trading the market, and buying physical gold and silver.

Now I know that many of you are upset over gold’s plunge. At the beginning of 2011 we said that gold would go from $1,200 to $1,600 per ounce – and we got very close at $1,560. But the interesting part of this story is that currently there is a disconnect between the price of the traded element, and the price of the physical element itself. In fact, many places won't honor the spot price of gold, because the physical metal is selling for much more than the paper. Remember, there has never been a time in the world’s existence that the price of gold EVER went to zero – you can’t say that about any other fiat currency!

The stock market itself (as you all know) doesn’t belong at these levels, yet it could go higher with all this funny money. Then again if we cause a war in Iran that pushes oil over $200 per barrel – then we could easily see the DOW at sub 8k levels overnight. But one thing is certain, and that is you can't just "set it and forget it".
- You have to trade this market, or be out of it.
- This year we are going to see more volatility, and more insanity.
- If you can't be nimble, you'd be better off staying away.

In the short term, we are now in January, and "often" we get the January effect. This is when fund managers get their "new year pension money" and plough it into the market. Usually they focus on two places:
- They put a lot in the stocks that worked well in the year before,
- And they put "some" in stocks that have been clobbered to death, looking for a strong rebound.

Will we see a January effect – we should but it’s not written in stone. Even though this year brings major challenges, let me wish you a great new year. Don't forget gold and silver. Yes they're down – they’re supposed to be down, and they'll be back. Keep an eye on your personal safety, and remain aware of your surroundings. Crime is on the rise and will continue in that direction.


So right now we’re holding:
- UNH at 50 (currently 50.81),
- SPY at 124.08 (currently 125.43),
- EP at 25.72 (currently 26.85),
- SE at 30.20 (currently 30.75),
- JCP at 34.05 (currently 35.15),
- HEK at 6.51 (currently 6.64),
- GLD at 159.49, now @ 152 - AND
- SLV at 28, now @ 27.07

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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