This Week in Barrons – 8-19-2012
“Something’s
Coming – Something ?” … West Side Story
This
is a line from the musical West Side Story that announces a big change
coming. There is a certain uneasiness in
the air, where people know “something” is coming and no one knows what. There’s something just not right going on out
there:
- - In the past week the U.S. Treasury (via U.S. regulators) has
directed five of the country's biggest banks (including Bank of America and
Goldman Sachs) to develop plans for staving off collapse if they faced serious
problems, emphasizing that the banks could not count on government help.
- - In an attempt to push stocks higher, we are seeing our Fed
send dollars to Europe to support the Euro and weaken the dollar. These currency
flows rose to $9.3 billion in the current week, the highest since December 9,
2009.
- - In the past week John Corzine - previously of MF Gobal (a
company that literally stole hundreds of millions of dollars from customer’s
accounts – a criminal offense) – instead of going to jail, pseudo-announced
that he would like to launch a new hedge fund!
- - The unemployment rate in New Jersey rose to 9.8% - highest
since 1977 – all the while unemployment claims in 44 of the 50 states are
reaching new highs.
- - The price of ground beef hit a record high.
- - The Philadelphia Fed report came in negative (for growth) for
the 5th month in a row, and the Empire State Fed report came in with
a 13 point plunge to go negative.
- - Companies are beating earnings estimates by a penny on
falling revenues.
- - Anxiety about stocks is running so deep that net deposits to
bond funds thru July are already 50% greater than for all of last year!
- - And one of Joe Biden’s good friends received a $20M Federal
Loan to open a luxury car dealership in the Ukraine!
Here
are a couple headlines that fall into the: “You just can’t make this s__t up”
category:
1. 1. The U.S. Department of
Labor announced on Monday that it will
be awarding almost $100 million in grant funding to states to prevent layoffs
by allowing businesses to pay employees as part-time workers and the federal
government will pick up the tab for the cost of a full-time paycheck.
2. 2. Finland is preparing to ‘batten down the hatches’ for a full-blown currency crisis as tensions in
the Eurozone mount and has said it will not tolerate further bailout creep, or
fiscal union by stealth.
3.
3. And finally – the world is warning
us about ‘food inflation.’ Between the drought in the
mid west, the possible closing of the Mississippi river for barges, and the way
oil is rising again – when The Ben Bernanke does his next round of stimulus –
food prices will soar with ground beef being just the tip of the iceberg.
While
we see the stock market rise almost every day as they look forward to The Ben Bernanke's
gifts of fiat dollars, I’m hoping the money we all see in gains will be enough
to offset the inflation that we’re all going to feel. If you have the room, buy some food for
storage. Not because the world will end
today, but because food is going to cost more over the next several months. When the Government is telling banks to make survival
plans, and when seemingly mellow Government agencies are buying untold millions
of rounds of body damaging ammunitions – there’s something "up" and
it's NOT GOOD.
The
Market...
The
high S&P and DOW closes back in April, were 1419 and 13,279
respectively. On Friday the S&P closed
at 1418, and the DOW closed at 13,275. They
have pushed the market right to the 4-year highs – so what’s next?
The
technical pattern that was developing suggested that the market would trade
sideways and then inch itself higher, and that has indeed happened. Now all that is left is to see if we can close
a couple days above the intra day highs at 1422 and 13,338 – which will get us
into "breakout" mode. Can they
pull that off? I think they can, but it
won’t be easy. Retail investors have
been pulling money out of the market, and the only reason we're inching higher
is the destruction of the US dollar. The
Ben Bernanke continues to prop up the Euro (so our dollar falls), and all of
our hopes rest on The Ben Bernanke and Draghi pulling off a coordinated,
gigantic round of "QE".
We
are in overbought territory again – but as long as there's no bad news out of
Europe, and as long as The Ben Bernanke's henchmen continue to tell us that
something's coming, they will continue to inch us higher. But we are getting down to the
nitty-gritty! The Jackson Hole Wyoming
meeting is in two weeks. If (after the
meeting) The Ben Bernanke doesn't announce something – the market will be
sorely upset. Then on September 12, we
have the German vote considering whether they can even join in on the ESM and
the ECB bailout maneuver. So there are
two inflection dates – the Jackson Hole meeting, and the German ruling.
What
happens if we get positives out of both dates? Will the market "sell the news"
having already run up on the rumor? In
the case of QE, the market has made substantial gains after any announcement,
and I would suspect that this would be no different. If The Ben Bernanke does some form of Mortgage
Backed Securities (MBS) buying, and the Germans go along with Draghi, I suspect
we pile on a lot of points. As long as
Bernanke's willing to devalue the dollar, and help the Euro, we should see them
try and threaten the old, all-time highs of DOW 14K.
We've
been leaning long into this and so far it's the right thing to do, but it’s
like walking on eggs. On any day someone
in Europe could come out and say the whole plan is shot, and that would indeed
knock 400 points off the DOW.
I
believe that The Ben Bernanke will come out with something, and I believe the
Germans are going to go along with Draghi. NOT because it's right, but because they have
no choice – without the punchbowl, everything falls. It’s not about fixing anything; it’s all
about living another day.
In
terms of developing a strategy to protect yourself and profit from all of this,
you might consider an option straddle. Also consider adding some VIXX to your portfolio,
as volatility should increase if things don't unfold just right. This is one of those times when making the
right decisions can indeed line your pockets.
Currently
I have 22 stocks that are on my radar for possible purchase. I am not buying 22 stocks, but have 22 that
are set up nicely and are worthy of a swing trade if indeed the market holds
up. Some are cheap – like LSCC, which I
just purchased. It had been struggling
with the $4 level for months and I thought that if it crossed it again, it
might go. Some are more expensive – like
IBM, which I also purchased. It had been
banging its head against $200, and when it made it through I took it. And some are mid-range like MMM. I liked the sideways shuffle it had done at
the $92 level, and told my twitter followers that when it crossed $92.50 I’d
buy it – and now it’s sitting at 94.24.
This
is an exciting time. In the next couple weeks we will know a whole lot more,
and I will probably be making changes to my asset allocation and cash positions
along the way.
Tips:
Currently I’m holding:
-
SPY – in at 135.75 (currently 142.13) – stop
at 141.00
-
GDX – in at 42.50 (currently 45.32) – stop at
43.50
-
PBR – in at 21.80 (currently 22.28) – stop at
22.00
-
WRES in at 2.63 (currently 3.04) – stop at
2.80
-
LSCC in at 3.80 (currently 4.10) – stop at
3.80
-
WYNN in at 102.03 (currently 105.03) – stop
at 104.09
-
IBM in at 199.99 (currently 201.18) – stop at
200.60
-
SNDK in at 42.51 (currently 42.53) – stop at
41.80
-
MMM in at 92.53 (currently 94.12) – stop at
93.00
-
GLD (ETF for Gold) – in at 158.28, (currently
156.66) – no stop ($1,616.30 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 27.23)
– no stop ($27.99 per physical ounce).
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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