This Week in Barrons – 9-9-2012
Dr.
Doom ‘n Gloom – That’s Me!
We
stand just a few short months away from what many people are calling the most
important election of our country’s life.
On the surface it seems to show a clear separation of the parties. The Democrats w/ President Obama stand for
‘shared prosperity’ (socialism, big government, etc.), with the Republicans and
Governor Romney standing for ‘individualism.’
Over the past 40 years we've had ample supply of both sides, yet we are
still at a time when:
- - 47 million people are on food stamps,
- - the labor force participation rate for men is the lowest
since 1948,
- - 70% of the current job openings pay less than $10 per hour,
- - our houses are viewed as liabilities instead of assets, and
- - hamburger prices have reached an all time high.
But
the economy is just the symptom of a very insidious disease. What got us into this position? We Americans are amazing when something bad
happens. No nation on earth will band
together neighbor-to-neighbor and pitch in to help, like in the US. No nation has been so profoundly
technologically advanced, so far ahead of the curve. Yet – we are still a nation of sheep – willing
(and often wanting) to be lead. I don’t
think it really much matters WHO wins the election – because an economic
disaster is set in motion and will not be stopped.
- - Debt problems don't go away by borrowing more money.
- - Jobs won't magically appear by increasing or decreasing taxes.
- - You can’t fix or improve a health care system by absorbing
millions more (non-paying customers) into an already stressed system.
I
sat through two conventions waiting for someone to talk about how relocating
manufacturing, and creating so much red tape (via EPA, DEP, CAFRA, etc.) have
lead to our current predicament – but alas not a peep. Unfortunately the economic fallout is coming,
and cannot be stopped. But, we can ‘kick
the can’ further down the road. The $64
million question is: How ugly will the situation get? Almost daily we hear of military operations in
towns across America. We see more and
more cameras and drones watching our every move. We see laws being passed that allow you to be stopped,
arrested and held without representation, without court ordered papers, just
"suspicion'. You have to at least
consider the idea that Uncle Sam is preparing daily for social unrest. Imagine what would happen to the inner cities
if the EBT (welfare) cards wouldn’t work?
Imagine what would happened if banks wouldn’t open one day, or credit
cards declined. We are in uncharted
territory.
-
Never in the history of the world have so many Countries gone
broke at the very same time.
-
Never before has the global financial scene had debt loads in
the multi-trillions, not to mention the derivative time bomb, where some $700
trillion has been pledged and pledged again against the same assets.
I
have gone on record saying that there would be a coordinated Central Bank push,
with both sides of the Atlantic embarking on a money-printing orgy. We
had a good start this week when Mario Draghi released his plan for "open
ended buying of bonds". Now, if the
Germans vote yes (on the 12th) for going along with the plan, and
then Bernanke gives us more on the 13th – we should be good to go. However, little did I know the Chinese would join
the party this week by announcing a massive infrastructure project including
bridges, highways, water systems, a Port system, and 25 urban railroad projects.
So we now have the real distinct
possibility of three continents joining in the stimulus effort.
My
point remains the same. If Bernanke, the
ECB and China unleash massive stimulus via their various programs, it will
indeed spur economic activity. But
unfortunately it has no staying power. More
debt, placed upon an already un-payable debt burden, just brings the pin ever
closer to the balloon. It's the
aftermath that bothers me – so just call me Dr. Doom ‘n Gloom.
The
Market:
Okay,
they fired off the stage-one rocket boosters on Thursday, when Mario Draghi
announced Europe’s plan to buy up Government bonds. Then China (who has been slowing over the past
several months) announced a massive $158 billion spending spree on railways,
roads, ports, etc. – therefore the market held onto the previous days gains. If the Germans (on the 12th) go along
with the program, we'll see another market gain. And finally (on the 13th) The Ben
Bernanke gets to join in with more QE/Stimulus from the U.S. With all of that new money in the system –
the market should move higher and higher.
There
is a chance that the Germans don't go along with the party, and/or The Ben
Bernanke doesn't give us something substantial – in which case the markets
could rollover – which is why we have not gone ‘all in’. I don't want to be loaded to the hilt here
ahead of what could be a wild Wednesday and Thursday.
I
still think that the Germans vote to go along with the program. Not because they like it, but because not
going with it would most definitely signal the end of the Euro as we know it. They could very easily look at it as the
lesser of two very big evils. I'm also still
thinking that The Ben Bernanke announces something on the 13th. Therefore, the stars are aligned for a big-time
pop higher. I do not think that this will
be a "sell the news" type of event.
However,
gaming it by getting too long ahead of this is dangerous. I’m waiting to put the bulk of my funds to
work AFTER I know all the details. I'm
suggesting a straddle play in the TIPS section – that you can certainly use on
virtually any holding.
The
Gold market also smells something big. It's one thing when gold increases
a few dollars a day, but $25 and $30 daily gains suggest that some inflation is
coming our way in rather large doses. Silver
has also been on a fast ride higher – despite JPM loading up on the short side
of the ledger. Can JPM really beat the
silver price down again with all those paper shorts? I guess it's possible, but if the stimulus announced
this week is big enough, I think they've lost control and it will challenge the
old silver highs relatively soon.
There’s
a wild week coming. I'm excited (not to see
more fiat money), but to see how the markets react to all of this. One thing I can guarantee – this will NOT be a
boring week in the markets.
Tips:
We
continue to appreciate in our trading accounts – DS writes me with some
bio-tech picks of: XBI breaking out, BIOT in another up-trend, ISIS, ARIA, and PCYC
with a significantly raised price target.
If
you own Apple (for example), you may think of straddling the stock. One-way to do this is by selling
the October $700 calls (trading around $15.50) and buying the October $650 puts
(trading around $14.25). In other words,
you protect your downside, make a little money, and have a good shot at holding
on to the stock if the price move to the upside isn't explosive.
Currently I’m holding:
- - GDX – in at 42.50 (currently 50.55) – stop at
49.00
- - SPY – in at 142.54 (currently 144.41) – stop
at 143.00
- - SBUX in at 48.88 (currently 51.03) – stop at 50.10
- - LOW – in at 28.02 (currently 28.32) – stop at
entry
- - MRO – in at 28.13 (currently 28.60) – stop at
entry
- - NTAP – in at 35.13 (currently 35.80) – stop
at entry
- - IBM – in at 198.34 (currently 199.25) – stop
at entry
- - GLD (ETF for Gold) – in at 158.28, (currently
168.60) – no stop ($1,737.50 per physical ounce), AND
- - SLV (ETF for Silver) – in at 28.3 (currently 32.73)
– no stop ($33.63 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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