This Week in Barrons – 10-14-2012
QE3: “to Infinity and Beyond…”... Buzz Lightyear – Toy Story (the movie)
I my view we should have gotten a 5% market ‘pull-back’ when The Ben Bernanke announced QE3; therefore, the current pullback isn't surprising. But it is still surprising to me to have us trade virtually sideways and down for over 20 sessions. I still believe that there's a year-end romp waiting in the wings. I’m not sure of the catalyst for it just yet, but at some point we're going to see them put The Ben Bernanke's money to work and drive this market higher. It could happen on a Romney win, since Wall Street is backing his campaign. All in all, I think there's one last run higher left in this market, and then sometime in 2013, we're going to see the market roll over and it will fall a lot further than most people can imagine.
I tend to think that when we go short next year, we're going to have another record return year. Currently you can’t short this market because at any time we could touch the 50-day moving averages on the S&P and DOW and instantly bounce for 400 points. You need to wait on the big picture trend change.
- Consumer credit outstanding is at an all-time high of $2.73 trillion – as the Federal government has dished out billions in student loans.
- Total credit market debt ($55 Trillion) now exceeds 350% of GDP.
- The National Debt of $16.2 trillion will exceed $20 trillion in 2015 no matter who wins the Presidency in November.
- 40% of our citizens are obese, and diseases like diabetes are growing exponentially.
- This week 4 major companies sent out letters to their employees that if Obama-care were implemented, they would have to do everything from laying people off, to changing their entire work force to part-time status.
- CNBC reported that 4% of all trading in the U.S. stock market last week was executed by one algorithm that placed an order once every 25 milliseconds and then canceled that same order. It was a specific firm’s way of baiting buyers interested in purchasing a specific stock (showing them extremely high volume), and thereby forcing purchasers or sellers to reveal their positions prior to executing a trade.
- In one Texas school district, children wear RFID devices so the school can track their every move.
- The UN is pushing for the implementation of the first "global tax".
I received many questions this week from readers – and here are three:
“Is now a good time to buy a house?” Housing is a key economic issue as it has lagged the recovery badly until this year. What I see is that most of the pickup in demand is not coming from real home buyers, but speculators, hedge funds and Freddie Mac / Fannie Mae getting into the rental business or buying the speculation. Hence I don’t see a sustainable housing recovery – and see foreclosures picking up in Q2 thru Q4 of 2013 along with an already massive backlog of foreclosures.
“Will there be a Santa Claus Rally?” Stock trends around the world all point toward a major stock bubble bursting just ahead. There is very strong upper resistance on our S&P at 1,580 to 1,600 and on the other world markets as well. That means that even our best estimates give an 8% gain remaining for stocks until the end of the year. I think stocks will peak over the next 6 weeks and (like 2008) leave Gold and Silver to diverge and continue their own rally into 2013.
“Can we fix the U.S.?” Yes we can – but it’s not going to happen. The single most important reason that we were able to become the most powerful middle class on earth – leading to our expansion and manufacturing was CHEAP ENERGY. Cheap energy allowed people to purchase their dream homes 40 to 50 miles from where they worked. They could afford the 35-cent a gallon gasoline that allowed them to work in the city, but live in the country. Housing was the ticket to a strong middle class. The fact is that when a developer puts up 1,000 houses, tens of thousands of craftsman have a job. Demand for goods rises. Factories expand to meet the demand. But, without cheap energy, it all stops. So why don’t we have an energy policy out of Washington? For 40 years I've been promised (by every single Presidential candidate) that we'd have a safe and secure energy policy that kept our energy cheap and our nation safe. In the past ten years, via the improvements in fracking, oil discoveries off Alaska, and deposits in Canada, the amount of energy the US can produce is staggering. Yet it's opposed every day by our own government.
- Obama pledged billions to drill offshore – where – Brazil.
- Remember when Obama looked at the camera and said point blank: “Oh you can open a coal company, but you're going to go broke."
- Obama turned down the pipeline project.
- Obama’s tried his best to halt offshore exploration and drilling. He comes on TV and says: "Exploration and drilling have expanded on my watch." But what he doesn't tell you that it’s all on PRIVATE lands. On the U.S. owned lands, exploration and drilling are all but nonexistent.
Thus, we have no choice but to prepare for a pretty tough stretch of road ahead. We need to understand that this path is unsustainable, and will end badly. But hey, maybe that's the very medicine we need. Once we all see the big depression hit, maybe then, we can finally do the things we need to rebuild correctly. But between now and then, I’ll continue to hunker down.
When Bernanke announced QE to infinity, my reaction was that the market should have "sold the news" and done a 5 to 8% pull back – back to around 13,000 on the DOW. But instead it didn't, and slopped and chopped sideways for 20+ trading sessions – between 13,300 and 13,600. Inside that range, everyone has played the sector rotation game, bidding up materials one day, tech the next, pharma the next – but basically running in place. This all could be described as ‘base building’, but I was disturbed that we didn't have that initial correction.
After trying to break the DOW above 13,600 and failing the previous week, we are now experiencing full tilt selling. We are just about 10 points above the 50-day moving average on the DOW. On the S&P the scenario is worse, we're a couple points below the 50-day moving average. If we put in a close or two under that 50-day moving average, we could be looking at 13,000 in a very short period of time. There's not a lot of support at 13,300 and under that things get ugly.
Could this be the pullback we expected on the The Ben Bernanke announcement that's finally come home to roost? It very well could be folks, but allow me to apply a slightly different spin to this. Back in 2008, Wall Street was all about Obama. The Wall Street campaign donations were enormously skewed to the Obama coffers, and Obama won. This time, Wall Street's hundreds of millions is going to the Romney camp. In fact the ratio is higher than 10 to 1 for Romney.
Is it possible they kept us up all those days just chopping around so they could then let a correction hit – just so that Obama can't point to the market, and tell the lie that his policies have pushed the market to new highs validating that he's on the right track? With algorithmic trading robots, high frequency trading, etc. there’s virtually nothing that bankers can't pull off when it comes to the market. In fact a Swiss entity just put out a study that found a mere 147 corporations have control of 40% of the world's wealth; which is the real economy. Of those 147 corporations, the big hitters are the banks, and they cite: Goldman, JPM, UBS, etc. If you are that powerful globally, it wouldn’t take all that much to pull off a little market sell off which would benefit Romney.
I know that might sound silly, but the market is doing what it always does – dissuading the most amount of people it can – before it "takes off". Don't forget that many fund managers (and individual investors) thought that when QE3 was announced we'd soar to new highs. Well, the market is rarely that accommodating. The market senses if too many are long, it goes down, and when too many are out (or short the market) it goes up. That's its job, to separate as many from their money as it can. So, as more and more folks get depressed that QE 3 hasn't worked and are pulling out or going short, the market will punish them with a long side run. But it will do it when it wants, not when I want.
In terms of gold and silver, the numbers tell the story: Silver is up over 18% in 2012 and up at least 27.5% since mid-June, only four short months ago. Silver Wheaton’s (SLW) CEO Randy Smallwood (and other experts) believe silver will soar to $40 an ounce within six months, and end 2013 with 47% gains, putting silver at $50. There is a definite ‘silver lining’ in the Fed’s "QE to Infinity" remark. And if some analysts' predictions come true (that we do experience QE4 next year), silver could go even higher. It really all comes down to how many U.S. dollars are being printed to carry, restart, or build on the economy here in the United States. We may not be able to stop the Fed from aligning with the government to support a wasteful bureaucracy at the expense of taxpayers like you and me, but we can make money on it via Gold and Silver.
Consider this, with Romney doing so well in the polls and telling voters in West Virginia that if he's elected he's going to help the Coal industry – the coal stocks are moving upward. I like BTU over $26.25 per share.
Also consider HPQ. Hewlett Packard / Compaq is NOT a trade. I’m thinking about holding this for a few months. HPQ is still a major player, and their 3D printing could be the fundamental catalyst that allows them to exit the tunnel that they’re currently in. I may be willing to hold it for a while and see if the value guys start to sniff around.
This week (on twitter and for real) I purchased some: SLV, SIL and SLW. I also stopped out of: JNJ – $0, MMM – $0, FCX – $0.25 cent gain, GDX for a $10 gain, and IBM for $10 gain. It was a good week!
My Current Holds are:
- FDX – in at 86.03 (currently 90.38) – stop at 88.15
- SIL – in at 24.51 (currently 24.37) – no stop just yet
- SLW – in at 38.50 (currently 39.10) – no stop just yet
- GLD (ETF for Gold) – in at 158.28, (currently 169.91) – no stop ($1,768.80 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 32.37) – no stop ($34.05 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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