I’m still Old enough to Remember, but not (yet) Old enough to Forget:
The market did something very interesting on Friday; it failed to respond to a mindless jobs report by roaring higher. That speaks volumes of what the investing public is doing. In terms of the numbers released this week:
- Friday’s jobs report said that 200,000 jobs were created in December, and I’m sure J. Q. Public said – ‘Wow, maybe my kids (or me) can find a job.’ Not so fast, because short-term delivery drivers and extra help at retailers accounted for 45k of those jobs. And subtracting off other seasonal variations - Trim Tabs reported that the jobs created number was actually 38k and not 200k.
- Thursday’s ADP ‘Unemployment’ report came in as a seasonally adjusted to 376k new unemployment claims files – but also the non-seasonally adjusted number was actually 525k (ugh)!
The interesting part of both of these reports is that Wall Street behaved rationally. That means that we’re going to need ‘spectacular’ news in order to move this market higher – because the real facts are beginning to get in the way of ‘fantasy’ – even on Wall Street. Some real facts from this week:
- American Eagle Outfitters - the teen apparel retailer – cut its Q4 guidance,
- HTC – the mobile phone maker – will cut its Q1 chip orders by 20% blaming slowing global demand for high-end smartphones,
- Nucor - a steel maker - announced that it was closing Nuconsteel due to faltering returns, and
- J.C. Penney and Gap slashed their Q4 outlook.
With real un-employment running around 15%, and under-employment running around 40% - I took a few minutes this morning to look at the job listings in Pittsburgh, PA. The results are potentially not shocking, but they are indeed depressing. I remember my old friends being hired (right out of high-school, no experience, 30 years ago) in my old hometown, for a manufacturing position – for $15 per hour. Within a couple of years they were making $21 per hour. In this morning’s paper there is an “Engineering Assistant” job listing:
- Requirements: Bachelors degree in Engineering
- Duties include: Complete familiarity with implementing process control techniques and procedures into manufacturing environments. Analyzing manufacturing process flows continually for the enhancements of quality, cost reduction, and throughput…
- Salary Range: $28,000 / Year
So 30 years ago a person could start with 0 experience for $29,640 / year, and today with a college degree, and experience that person is starting at $28,000 / year. And 30 years ago a Ford F150 cost $8,383, and today it costs upwards of $22,000. So prices on Ford F150’s have gone up 175% - while wages have gone down.
The bottom line of this particular rant is that in order for the markets to go higher this year (and potentially President Obama to be re-elected), we’re going to need to hear "better" news on all fronts. Therefore, please make your financial decisions by digging below the surface, do your own research, and stay safe.
The Market:
Between insider trading, the plunge patrol team, high frequency trading, dark pools, criminal Federal Reserve heads – I really sympathize with anyone trying to predict this market. Therefore when I saw the jobs numbers on Friday, I really did expect everyone to buy the market. Remember, on Jan 3, we closed the DOW right at 12,400 – the next trading day we closed at 12,418 – and the following day we closed at 12,415. That looks very much like a consolidation, ahead of the important (to be released) jobs number. Yet Friday, instead of using those numbers as a base to press higher, the market sagged and closed at 12,359. I don't think we can explain it away as a European problem, or not wanting to hold over the weekend – I think the market just ran out of gas – a.k.a. the buyers just didn't show up.
So does this mean that the “January Effect” is over? We still see some stocks making good chart patterns and pressing higher, but the fact is if the market (as a whole) rolls over, individual stocks will rarely be able to hold up on their own merits. Just like a rising tide lifts all boats, an ebb tide puts them all in the mud. This week we’ve seen stocks that run higher for a dollar, two, maybe three and then "bang" all the way down to where we bought them. So we are going to change our trading philosophy slightly. What we are doing now is going into a stock ‘fairly heavily’ and then selling ‘half-positions’ as it makes a decent gain – and then we exit the entire purchase where we bought it (if the stock drops to that point). We accomplish all of this electronically – naturally.
Now in the case of Gold and Silver, things are equally as bazaar. 80% more silver was purchased the first week of January 2012 than was purchased in January 2011. Now, how can demand for something rise 80% in a year, and yet the price not move up accordingly? It's easy, just ask J. P. Morgan. On Wednesday, the CFTC is going to hold a meeting to determine and clarify 3 rules in regards to “swap” trading (the type of trading in which J.P. Morgan specializes). But wait, the committee has decided that they first need to determine the meaning of "swap". So, they're going to hold a meeting to clarify such things as "Business conduct standards for swap dealers" this coming week, and then they will define the term "swap" in February.
The Gold pits are equally bazaar. Some central banks are clamoring to buy more, while others have sold some to raise desperately needed cash. In Asia, and in Europe, the amount of people buying gold is making new record highs every quarter. But the price is still depressed – why? By calling up your physical gold dealer you’ll find that they have very limited, shippable quantities on any significant buy order. You’ll find that the ability and price to obtain the physical product is indeed growing – which is good news for investors because at some point, imbalances do come to an end. I don't know when, but I think we're getting close. Currently there is tremendous pressure on the SEC and the CFTC to finally come clean and give us back a market that people can trust. They’re taking a long time so that the criminal banks (JPM) can cover their shorts and get properly in the shadows. But I do believe “swaps” and position limits will be defined, and at that time the silver market (in particular) will rise substantially.
I’m still leaning long but there’s no guarantee, so be careful out there. We are no more stable in January, than we were during the fall, so wicked 300-point days could become the norm again. Hold tight, its all going to be jolly fun!
Tips:
So right now we’re holding:
- UNH at 50 (currently 52.78),
- SPY at 124.08 (currently 127.90),
- EP at 25.72 (currently 26.14),
- SE at 30.20 (currently 30.45),
- GDXJ at 25.77 (currently 25.50) - stop at 25.0
- XOM at 86.00 (currently 85.18) - stop at 84.70
- PFE at 21.91 (currently 21.57) - stop at 21.30
- GLD at 159.49, (currently 156.87) - AND
- SLV at 28 (currently 27.96)
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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