RF's Financial News

RF's Financial News

Sunday, January 22, 2012

This Week in Barrons - 1-22-12

This Week in Barons: 1-22-12:

“Up, Up and Away” … Superman

Here’s a news blurb that I found somewhat startling – “The average time a U.S. stock is held increased last year from 20 seconds to 22 seconds.” According to Michael Hudson, “It's a shorter time frame than even the average foreign currency trade, which is now 30 seconds. It's all about computers (with high-frequency trading) making up 70% of all volume.”

The trading day is 6.5 hours long, or 390 minutes long, or 23,400 seconds long. And if the average hold time is 22 seconds, one stock is changing hands 1,062 times in a day. Now multiply that by all the stocks. Last year $38 Billion was removed from mutual funds and stock funds as people moved to gold, silver, bonds, and spending money. So, if you take out all that money, and then add in the idea that 70% of all volume is high frequency trading lasting about 20 seconds – Is anyone really buying or selling stocks anymore? It sure doesn't seem like it!

Obviously it’s not humans doing these trades, but rather computers. And with this it’s not the ‘attitudes of millions of investors’ that are moving markets, but rather the high frequency computers that are moving markets. For example: didn’t it bother anyone (last week) that Goldman Sachs missed their revenue projections by 30% last quarter but the stock went UP $6. Didn’t it bother anyone that the International Monetary Fund (IMF) is looking to borrow another $1 Trillion (because the first half trillion might not be enough) and our market went UP for the week? Now, I’m not advocating buying and selling 22 seconds later (like Wall Street has morphed into), but ‘active management’ is the only way to play in this market today.

What if you can’t manipulate your funds all that quickly? What if your funds are a part of a 401K or other structure that doesn’t allow for daily or even monthly manipulations? That ‘absolutely’ will require a more ‘macro’ view of the economy. If you have a broad enough ‘fund family’, potentially you can find a gold, silver, precious metals fund – but let’s assume your fund family isn’t that broad. Our ‘down the road’ view is that The Ben Bernanke is going to unleash QE4/3. (I say QE4 because QE3 was the U.S. loaning the European Central Bank (ECB) half a trillion dollars.) The Ben Bernanke will do QE4/3 because Obama is in the fight of his life to remain President. Obama needs an "up" market so he can take credit. The Ben Bernanke would be fired the day a Republican got in office. Therefore, The Ben Bernanke will do what ever Obama wants.

And this week (I digress) Obama wanted to veto the "Keystone Pipeline" bill. It would have been an opportunity to ship good oil and gas from a friendly nation down to our Texas refineries. It would have employed (some estimates show) 20,000 workers. It would put everyone from construction to chemical operators to work. But much worse was a quote Obama used to justify his veto: "However many jobs might be generated by a Keystone pipeline, they're going to be a lot fewer than the jobs that are created by extending the payroll tax cut and extending unemployment insurance." Huh? I know 6th graders that would construct an argument better than that. Somehow giving couch potatoes 150 weeks of unemployment payments creates more jobs than a 2 thousand mile construction job and the entire product that would be delivered, refined, and shipped. If you're a Democrat (and you love this guy), this even has to leave you scratching your head.

In any event (concerning your 401K), I truly believe massive stimulus is on the way. Stocks should go up, and so should gold and silver. Of course the U.S. can't afford the stimulus and of course a day of real reckoning will hit, but that's in the future. I would consider shifting some of that ‘cash’ in your 401K into a more growth oriented fund investment. We continue to lean long into this rally and it's going well so far. Let's keep our fingers crossed for more.

The Market:

Up, up and away… yes it’s a Superman market lately that shrugs off bad news like Superman shrugged off bullets. This week showed that J.Q. Public is putting his toes back in the water for the first time in almost a year. Last year J.Q. Public pulled over $39 Billion out of mutual funds, and this week $11 Billion came roaring back into them. It's not a record by any means, but it's a pretty big chunk of change. So why is everyone so optimistic? Well, there comes a time when people think they've weathered the worst: housing collapse, Lehman’s collapse, bailouts, rounds of stimulus, and horrible unemployment. They witnessed America's credit rating get cut for the first time in history. They remember August, 2011 when the market would drop 500 points on words out of Europe, and then gain 400 back, only to lose 300 the next day. J.Q. Public feels like he’s been through it all – and he’s still standing!

But J.Q. Public’s $11 Billion isn't why the market is moving higher. It's moving higher because there's a growing chorus of people expecting The Ben Bernanke to let loose another round of stimulus. I've been saying for quite some time that the next ‘round’ is on its way. This week, if indeed he does mention that more stimulus is coming, fund managers will plow into the market because they remember the market going up 6,000 points on QE1, and another 2,000 on QE2. So if this stimulus would be $1 Trillion, we could see another 2,000-point gain or more.

Now, if The Ben Bernanke and this week’s FOMC meeting produce nothing, and there's no News Conference – then I suggest this market will go down. So that's the deal, this market is rising in anticipation of more Federal Reserve stimulus. If we get it, we could see a very powerful rally that takes us into the fall. I think we will because The Ben Bernanke needs Obama, and Obama needs a rising market in order to get re-elected. It's pretty much assured that it's coming.

With additional stimulus, along with stocks rising, gold and silver will also increase as they are the anti-fiat money and will guard against the inflation that will eat into your dollars. Materials generally do well in a stimulus inspired market run. Last year some of our biggest swing trades were names like UYM. We bought UYM for around $30 and sold it 8 months later for $52 dollars. CLF and ANR did phenomenally well for us as well. We'll be looking at those and quite a few others that aren't so widely tracked going forward.

A reader had a question concerning how I arrive at my ‘Twitter’ posts each day. Every day I scan for particular set ups. I’m looking for stocks with a "reason" to go up, nearing a resistance level, and we have a flat to rising market. When I find some, I post them on Twitter (handle taylorpamm) with their corresponding ‘buy-in’ prices. I normally post them each morning, and if some get up and over their ‘buy-in’ prices – I take them. And then thru this Sunday letter you’ll see what’s remaining in my active portfolio, and the ‘stops’ that I have set for those ones that I am still holding. Lately – if something dips below the price that I paid for it – I normally sell it. Now, because not every stock gets over my ‘buy-in’ price that day I’m forced to keep a running list of some of the old ones that I’ve recommended as well (dating back a couple weeks). I continue to put up new ones as they develop, yet the old one's are still "relevant". For example: on December 11th, I mentioned that a move on CCJ over $19.65 was buyable. Well, it didn’t get over that mark for several weeks – but it’s now sitting at $23.50. What I do is take these ‘radar ideas’ that I tweet about – and load them into my stock trading ‘alert’ system. I let the ‘trading software’ alert me that one of these is getting close to the buy in area – and then I decide whether to pull the trigger.

So for all the Twitter followers – thanks – and to reinforce what we’re holding:
- ADBE at 30 (currently 30.06) – stop at entry,
- LRCX at 40.16 (currently 42.45) – stop at 41.00,
- TMO at 50.01 (currently 51.14) – stop at 50.50,
- KBR at 29.80 (currently 32.01) – stop at 31.20,
- STX at 18.61 (currently 20.00) – stop at 19.20,
- SE at 30.20 (currently 31.44) – stop at 30.90,
- FWLT at 20.00 (currently 23.11) – stop at 21.60,
- GLD at 159.49, (currently 162.00) - AND
- SLV at 28 (currently 31.27)

DS writes in with a tip on BroadVision – BVSN – a stock that he purchased for $8.31 on December 12th, and is now at $27.05 – clearing the latest technical resistance level. It’s clearly on a rocket-ship – nice call DS!

As you’ve seen – we’ve been very true to sticking to our stops and just moving on to another stock. We’ll continue that philosophy especially next week.

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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