This Week in Barrons – 10-28-2012
“Courage is being scared to death, but saddling up anyway.” ... John Wayne
This week the US Government posted GDP growth over 2%. GDP is our Gross National Product (the sum of all the goods and services produced in the U.S.), and this 2% growth EXCEEDED even the brightest of estimates. With all of the major businesses telling us that they are dramatically slowing – how can GDP go up?
- Over 18 major companies are telling us that the global economy is dramatically slowing.
- The stock market darlings are missing their earnings estimates by a mile.
- CEO's are telling us that things “stink out loud”.
How can GDP go up? The reason is that the U.S. Government juiced the number itself – by purchasing over (33%) 0.7% of the 2% growth number – ITSELF – with money that it doesn’t have. So in much the same way as the September jobs report showed a decreased level of unemployment to 7.8% (courtesy of government employee hiring), this same government is now juicing its own numbers to make itself look better on the GDP side of the ledger.
I suggested back in June that the economic numbers were going to come out much better than the economy would suggest. Just imagine the (wink-wink) ‘courage’ that it took to print that 2% GDP number.
There is a real financial war going on between mutual fund managers too scared to buy over priced stocks, and banks that are flush with The Ben Bernanke's $80 billion a month burning a hole in their pocket. Will lousy fundamentals ever give way to a really deep, protracted correction, or will they find the ‘courage’ to give us a year-end rally? In the past, I’ve voted for the year-end rally.
Unfortunately, the DOW didn't challenge 13,600 because of rising earnings, wonderful fundamentals and a growing economy. The DOW crawled up from the 6,600 lows in 2009 on nothing but money printing by our Federal Reserve. Yet climb to 13,600 we certainly did. So, the market has proven that The Ben Bernanke’s Bucks do indeed move markets. But now we have a problem. In order to rise from 6,600 to 13,600 – companies had to lie, lay-off workers, account for all manners of write-offs, and even modify generally accepted accounting principles – in order to beat their publicized earnings “by a penny”. I think we’ve run out of ‘sharp pencils.’ If this had happened during any other market time in history – where 18 of the biggest, most amazing, terrific companies (like IBM, Google, Federal Express, Intel, Caterpillar, Apple, Microsoft, etc.) all came out and missed earnings and/or warned about lowering earnings guidance, we would have plunged straight down for 2,500 points instead of the 500 point plunge that we’ve seen thus far.
So the jury is still out. This collapse could (and should) indeed be the big one. This market has been primed and pumped like no one has ever seen – with $80 Billion a month flowing straight into the banks. Banks enjoy spending and taking risks with other people’s money, so what are they going to do with all of this money, it if they don't buy stocks? We have a very important election in front of us. We have a rabid Federal Reserve tossing the kitchen sink at things. We have an over-bloated stock market. And we have a global recession – all at the same time. So which group(s) will have the ‘courage’ to do the right thing?
This past week wasn't very friendly to stock investors. After trying for the fourth time to break above a very tough resistance at the 13,600 level, the attempt failed and the market lost 500 DOW points this week. It should have. All the monster companies of the US economy missed already lowered earnings, warned about the future, and should have received an old-fashioned butt whoopin’.
And Thursday evening things got even sillier. Apple (the most darling of all companies) missed their earnings estimates by a mile. And, to add insult to injury, Amazon then came out and confessed that they too were not selling as much as everyone had hoped. So, come Friday morning, I had to laugh when the ‘magic’ GDP number of over 2% was released, as it’s validity was only rivaled by the 7.8% unemployment number released weeks earlier.
But I tend to think that there is also something else at work here. DOW 13,000 isn't horribly important as a technical indicator, but it's quite a valuable psychological level. If the DOW lost the 13K level, it would paint a very bad picture for the health of both the market and the economy. I simply didn't think they wanted to lose that level, no matter what. So we closed out Friday sitting at 13,107.
I don’t think that they want to run the market higher just yet, but they don't want it to cascade downward either. I’m biding my time until a true trend forms. Right now, I think sitting on your hands is the right play.
I have received a few emails asking about going short any time soon. My feeling is if the DOW loses 13K, then it would be time to do a bit of short selling. BUT – this market reacts to The Ben Bernanke's printing. If you go short and The Ben Bernanke steps up his bond buying, we will put in another 200+ point gain in a heartbeat. I'm still in the camp that says at some point they will ‘light-it-up’ and send this market into a year end rally; therefore, I’d rather do nothing than get caught short.
I do believe that a monster correction is coming. It could be starting now, but I think it will start around May of 2013. I think that because Wall Street is a very vocal supporter of Mitt Romney, and could very well be using this time to "do some selling”, so that Obama can't point to a rising market and try and take credit for it.
If I’m right, we could see a soggy, droopy sideways market for the next 9 sessions, see a Romney win, and a very powerful sprint higher. However, if the DOW loses 13K, it's not a good sign. That's a big mile-marker to lose and could mean that we have more downside ahead.
This week I did not purchase anything – nor did I tweet about any stocks to watch. There’s an old saying: “Don’t fight the tape” – and currently this tape is ugly and it’s fighting to maintain that 13,000 level on the DOW.
I was stopped out of: TCK, RIG, CLF, BRCM – all for 50-cent losses.
I’m still holding silver and gold as a hedge against inflation and our currency.
As DS wrote us: “With the Fed so committed to quantitative easing, stocks might escape a crash, but not the dollar and Treasuries. Black Monday is more likely to occur in the currency and/or bond markets, with safe-haven flows moving into gold, not Treasuries.”
My current short-term holds are:
- SIL – in at 24.51 (currently 24.56) – no stop yet
- SLW – in at 38.50 (currently 39.34) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 166.00) – no stop ($1,710.90 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 31.08) – no stop ($32.01 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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Until next week – be safe.