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.
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.
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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