I’ve seen the Enemy, and they are us!
One of the few ‘good’ things about a war is that you know who your enemy is. Unfortunately, in today’s economic war zone, we could be our own worst enemy.
“The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the US Government cannot pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. Increasing America's debt weakens us domestically and internationally. Leadership means that, the buck stops here. Instead, Washington is shifting the burden of bad choices today, onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better!” … Senator Barack H. Obama, March 2006
So what happens now? I'd love to sit here and tell you all that the economic numbers you hear are real, and that we're digging out from under this mess, but I cannot. I don’t see anyway we can go back to anything that resembles "normal" unless we change back to the way we were.
- AIG could escape paying taxes for as long as a decade because of the way the Treasury unilaterally bent the tax code during AIG's bailout. This rule twisting could deprive the government of tens of billions of dollars while boosting bonuses for AIG employees.
- The use of food stamps rose 0.5% in December, with a record 46.514M Americans now receiving the aid for a total government outlay of $6.22B per month.
- China has sharply cut the share of its foreign reserves held in dollars $3.2T to a decade low of 54% as of June 2011, from 65% in 2010, and 74% in 2006.
- According to Bloomberg: 75% of US equity trades are now done through Dark Pools.
- 28% of all US homes had near-negative equity (or below) in Dec, 2011.
- In housing: Atlanta, Cleveland, Detroit, and Las Vegas all have average home prices that still sit below their 2000 levels.
- In housing: the Case-Shiller indices for the nation, the 20-city composite, and the 10-city composite are all close to their lowest readings ever.
- In housing: during Q4 of 2011, 24% of homes sold in the U.S. were in some stage of foreclosure. The average price of a foreclosure-related sale was 29% below the average price of a non-foreclosure sale. The situation is not expected to improve this year with a backlog of 4M homes in foreclosure.
The enemy of America is not overseas. The enemy of America’s Economic recovery lurks right here inside her borders. To quote Senator Barak Obama: “America has a debt problem and a failure of leadership. Americans deserve better!”
The struggle continues. There are those (Obama, The Ben Bernanke, the Bankers) that need this market to go up. And there are those that are scared to death of it and have left the market completely. You see, as the stock market is surging many investors just don't care. Individual investors have pulled $8.3B out of U.S. stock funds YTD, and have placed almost $10.6B into bond funds. “If the individual investors decide to dive back into the market, they have a lot of dry powder to drive the market higher” says S&P's Sam Stovall. “But, it will be difficult for the rally to continue much longer if they don't.”
Greece’s nightmare continues, as this week another 800 European banks lined up to absorb another $650B the ECB gave out – which was naturally given from our very own Fed.
Now, an interesting development this week, was that the Swiss and the Israeli's have decided that the US stock market seems like a great place to park their money. “The Bank of Israel will begin to pilot a program to invest a portion of its foreign currency reserves in U.S. equities. The investment (which in the initial phase will amount to 2 percent of the $77B reserves) will be made through UBS AG and BlackRock Inc.”, said Yossi Saadon a Bank of Israel spokesman. “At a later stage, the investment is expected to increase to 10 percent of the reserves.” In Switzerland, (at the end Q3, 2011) a number of central banks have started investing about 9 percent of their foreign-exchange reserves in US Equities. “The investment will be made in equity index trackers, and among stocks like Apple.” Really, we are so desperate to keep this market rally going, that we are allowing other nations to buy stock on our exchange. Now, if these nations lose money – does our Fed guarantee them against losses as well?
Every day the market hovers near breakout levels, desperate to get over S&P 1371, and DOW 13,000. My issue comes with the numbers that are coming out of this administration. Just this week the manufacturing numbers show that we built more ‘stuff’ than in either the Internet boom (1999 - 2000) or in the Credit Boom (2003 – 2007). Can someone please pull my finger? I'm torn over that. See, if you print another $15T and hand it to Goldman Sachs and J.P. Morgan - there's no doubt they can purchase enough stock to get us to DOW 20K. But expecting me to believe that we are manufacturing more stuff than in the two previous boom periods – please?
Here’s a video:
of a very proper gentlemen that is attempting to describe that he’s found $15T that no one can account for. Maybe this is the babbling of a deranged man. But begin to combine this with a few months ago the $6T in ‘fake’ US bonds that were seized in Switzerland. There are obviously some very strange things going on in the world as the US, UK, and Europe go through their death throes. Yet the market continues to hold up.
I see a lot of technical indications telling me that we're on the cusp of a correction, but (unfortunately) no technical chart can tell me what happens if by a wink and a nod, the Fed gives banks free money to put into index funds.
We've been leaning long, and it has been working, but it has been scary. Things feel fake and strained. There's no volume and the "Dark Pool" trading that Bloomberg reported on, is fast and furious. I've said for ten days now that we have to hurdle 1371 on the S&P and hold it for a few days to confirm a breakout. The market has not been able to do that. And, I said that this is the perfect time for a correction if one's about to hit. Yet each day we just "sit here" moving up and down around that level.
The Russell 2000 looks like it's in the first stages of rolling over. It was 83.30 just the other day, and Friday it got a bounce to save itself just above 80.00. If it loses 80, it could be the anchor that finally pulls the S&P and DOW into correction territory. Add remember, the Ben Bernanke did NOT talk of any more QE, therefore the index's are struggling, and the small caps are starting to fade. If the fade is going to happen, it's going to happen soon. On the other hand of course, if they magically find some wink money and some fake news reports - we could soar.
This Friday is this month’s Non-Farm Payroll report. Everyone expects that it's going to be less than last months "stellar" report, but if it’s really bad, that could be the straw that breaks the camel’s back and drives this market down.
We sold some of our positions last week mostly due to our belief of not holding any stocks over their earnings announcement(s). We continue to keep our stops tight. On the dip, we did purchase additional GLD, and SLV last week as well.
We’re currently holding:
- SNDK SanDisk – in at 49.17 (currently 50.91) – stop at entry,
- NE Noble Energy – in at 40.02 (currently 40.31) – stop at 39.50,
- MUR Murphy Oil Co – in at 62.00 (currently 62.26) – stop at entry
- BHP BHP Billiton – in at 75.85 (currently 75.93) – stop at entry,
- ADBE Adobe Corp – in at 30.00 (currently 33.730) – stop at 32.50,
- SPY (ETF for S&P) – in at 131.16 (currently 137.37) – stop at 135.50,
- GLD (ETF for Gold) – in at 159.49, (currently 165.90) – no stop, AND
- SLV (ETF for Silver) – in at 28 (currently 33.65) – no stop.
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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Until next week – be safe.