This Week in Barrons – 9-30-2012
“Can we change back – I don’t know – I think it’s harder!” … Dialogue from the movie Pleasantville
I’ve been termed: “Mr. Doom ‘n Gloom” – a person who always views the glass as being half empty. I’m really not. I just haven’t found a way (yet) to make financial frauds, manipulations, and $100 Trillion in debt sound “fun and upbeat.” We've seen the U.S. – the greatest economic machine in history, turn into the most indebted nation in history – all within our lifetime. And thanks to PM for the following video: http://www.youtube.com/watch?v=3EZQvSCGaJI&feature=youtube_gdata_player
This past spring, we made some predictions:
- The ECB would become more like a regular Central Bank, begin to print money that would end up not being sterilized.
- The German Court would go along with the ESM.
- And The Ben Bernanke would give us more "QE".
All of the above came true, and The Ben Bernanke even went well “above and beyond" our expectations.
My logical next step was that the market would eventually push higher. The game being played here is that by keeping rates at ridiculously low levels, Governments, Pension and Insurance plans are being forced to seek better returns. Nobody wants to invest in bonds paying 1.5%, when inflation is multiples higher. The Ben Bernanke knows that if he keeps the rates low, it forces big players into stocks. Then by adding another $40 Billion a month to buy mortgage backed securities, he's basically handing the banks "free money" to go splurge. What will the banks do with it (given they don’t want to LEND it) – it will find its way into risk assets.
I think we'll get pull backs (like we saw this week), that could blossom into 300 to 500 point drops. But I also think that the Fed and Obama (with his Plunge Patrol Team (PPT)) are so desperate, that they'll actually go in and buy stocks if they have to. The Ben Bernanke knows that his knowledge of the Great depression (and how to fight one) has failed thus far, and he's getting anxious viewing the Global economy fold up on HIS watch.
It’s currently fraud versus fundamentals. In the long run the fundamentals win and we will indeed crash, but in the short run (the next several months) The Ben Bernanke and Obama should be able to create the illusion of prosperity.
2nd Quarter GDP (the growth rate of our country’s output) was announced as 1.245% - downright awful! Estimates for 3rd Quarter are moving toward 0.9%, 4th Quarter rumblings of 0.4%, - and yes – more and more rumblings of a recession in 2013. Durable goods orders came in just as “horrible”, and once again housing was down. Everyone's feeling a bit scared. The Ben Bernanke announced QE to infinity and yet the market has done nothing but trade sideways and down. The “Talking Heads” are out in force, some saying that it's over – QE won't save us – we’re doomed, and others suggesting that this is just the pause that refreshes, and we're going up. One gent on CNBC suggested that we should load up the truck with stocks and get on board, because this is the single greatest moment in history, and 2013 will be the best year we've ever seen. “I’ll have what he’s having!” :)
Honestly when The Ben Bernanke announced the forever QE, I did not rush to change my asset allocation (i.e. put more money to work). I did not load the boat with "trades" in the short-term account. I had a hunch that Wall Street would do what it always does – suck people in, take their money, and when everyone's disgusted – ramp up again. I thought we would have a 5% pull back – and we’re not there yet.
But I do indeed think we've got one last spurt left. Not because of fundamentals (faked), or earnings (which are artificially inflated), but simply because all of the rules have now been broken. There is no fiscal sanity. If it takes $80 Billion a month to keep the markets up, so be it. If that's not enough, this administration will do $100B, because the supply is endless. This administration had two choices: (a) let the economy crash and pick up the pieces, or (b) continue these massive monetary injections, until the economy dies from overdose. Understand, “Politicians always pick Overdose.”
We’re about to enter earnings season:
- Corporate earnings will be very bad,
- Insiders are selling in volumes not seen in years,
- Mutual funds are seeing massive outflows,
- The Michigan Consumer Sentiment Index missed expectations,
- The Chicago Purchasing Managers Index came in at 2009 lows,
- The Baltic Dry Shipping Index is in the toilet (worst numbers in years), and
- The Transport Index never confirmed the big DOW move – why – because no one is shipping anything!
The Ben Bernanke and Obama both know this. Their real job (right now) is to counter all that selling by forcing the banks to pick up the pace of buying in order to keep the market up. This should work in the short term. So, trading-wise – I am biding my time. I've taken the exploratory trade now and then, but I’m playing light. I think that (at some point) we will see one of those ‘no news, no reason’ runs higher. I want to catch that run and escape with the winnings. On a side note, the Obama administration says they ‘found’ an additional 400K+ jobs they hadn't seen before. I’m betting that the Obama administration also ‘finds’ the unemployment rate going below 8% right ahead of this election (despite it being a lie).
I believe that the only reason that the run higher hasn’t started is due to Israel versus Iran, and that’s a true wild card. Israel has a terrible choice to make. Does Israel attack Iran now (ahead of the election), knowing it will force Obama to come to their aid, or wait to see if Romney wins – who’s already said that he would help Israel out. If Israel were to stage an offensive, and even if we were to jump in and help, Iran can inflict damage that would cripple the entire world. Iran could torch oil fields and create hazards in shipping oil lanes. People are suffering now with $3.80 gasoline, a spike to $4.75 would halt them in their tracks. I really do believe that the only reason the banks haven't started their buying binge of stocks is because of the very real possibility that Israel says “GO” and the attack (and corresponding market collapse) happens.
This is simply a war between a world that's in trouble and facing a deep recession, and the fiat money printers. Nothing could be more basic, but the answer on a daily basis isn't clear. I'm still in the camp that says in the short run, the Central banks can inject so much money into the system that it "has" to go somewhere and it will end up in the market. But because it’s truly a war, we're getting some real chop and slop here.
In any event, I’m keeping my powder dry for now. I feel that a last hurrah run is out there; I just don't know when it will start. When the world believes that Israel is holding true on waiting until after the election, then that would be the green light for stocks to go wild.
I stopped out of SPY last week for a $3 gain. SUBX for a $2 gain, NTAP for even, MNST for $1, and BRCM for even.
As DS suggested – I’m going to review the defense sector closely. I could be too late, but there must be charts of defense contractors – that will truly suffer if Mr. Obama is re-elected.
Currently I’m holding:
- GDX – in at 42.50 (currently 53.59) – stop at 52.80
- LOW – in at 28.02 (currently 30.24) – stop at entry
- MRO – in at 28.13 (currently 29.55) – stop at 28.80
- IBM – in at 198.34 (currently 206.59) – stop at 204.00
- GLD (ETF for Gold) – in at 158.28, (currently 171.84) – no stop ($1,771.10 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 33.40) – no stop ($34.52 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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