This Week in Barrons – 11-18-2012
“We shall draw from the heart of suffering, the means of inspiration and survival.” … Sir Winston Churchill
Survivors of Hurricane Sandy have sent us the following tips:
- Water … two 55-gallon barrels would let a family of four "flush" for a long time, and having 20 gallons of bottled water is necessary for drinking, sponge baths, etc.
- Heat … either preparing food or staying warm – a wood stove and your outdoor grill (with some propane) become your best friends.
- Power … a generator with a supply of ‘recreational’ fuel. This is gasoline that does NOT have ethanol in it and will last up to 2 years. An 8,000-watt generator will consume half a gallon of gasoline per hour – so plan accordingly.
- So for under $3,000 you can make your coastal home quite livable for weeks during something like Hurricane Sandy.
A more global survival list goes something like this:
- Because the Dow and the S&P 500 are both down more than 5 percent since the election and the U.S. government rolled up $22 Billion more debt in October 2012 than it did in October 2011 – think gold, silver, and agriculture as alternative investments.
- Initial claims for unemployment benefits soared to 439,000 for the week ending November 10th. This is the highest level that we have seen in more than a year. The largest number of new unemployment claims came from the swing states of Ohio and Pennsylvania.
- According to the Federal Reserve of New York, economic activity is contracting. Their index measured a ‘minus’ 5.2 this month after recording a ‘minus’ 6.2 in October. (Readings of less than zero signal contraction.)
- The mid-Atlantic region is also slowing much faster than analysts were projecting. It’s index measured ‘minus’ 10.7 down from ‘plus’ 5.7 the previous month. Some of the fall can be attributable to Hurricane Sandy – but unfortunately not nearly enough.
- The number of Americans living in poverty rose to a new all-time record of 49.7 million last year.
- The number of Americans on food stamps increased by 420,947 from July to August. At this point, an all-time record 47.1 million Americans are enrolled in the food stamp program.
- The Eurozone is officially in a recession once again, and unemployment in the Eurozone is at an all-time record high.
- China is buying gold and building uninhabited ghost cities.
- Stealth inflation is running rampant – hamburger is over $5/lb, and it costs $3.99 for a 10-piece loaf of sourdough bread.
- We learned this week (thanks to the powerful corn lobby) that our (non-elected) EPA is going to continue the ethanol subsidies – taking corn from being a valuable food resource.
- Companies like Denny's, Papa Johns and many others are reducing worker hours and laying off personnel in order to avoid the Obamacare mandatory price tag.
And finally: The Middle East is a tinder box, and if there's one thing we really don't need right now it's a full blown outbreak of war across the Middle East, which brings into play Iran and the Straits of Hormuz. An oil price jump linked to additional US involvement would virtually assure a disastrous economic condition.
Obama could help us all survive by:
- Opening all the Federal lands to natural gas and oil drilling.
- Opening the permits to build LNG plants on our coasts so we could export LNG (liquid natural gas) all over the world.
- Donating Federal Property on closed military bases and have several state of the art oil refineries built, supplying us with $2 gas and exporting the rest.
- Shutting down the EPA, and undo the ethanol madness so that corn is once again be a food source instead of fuel – thereby lowering our food costs.
Let’s all try and survive the storms that are coming: inflation, hyperinflation, high unemployment, and even more class warfare.
There are a lot of reasons that the market has plunged for about 1000 points in the past month and I’ll explore a few of them here.
- 1st the “Fiscal Cliff”. There's no doubt that some folks have decided they'd cash out this year and take the lower tax hit than hold into next year in case the tax rates are higher.
- 2nd Obamacare. We have companies saying that Obamacare is going to cut into profits and jobs.
- 3rd Revenues and Earnings. Revenues have been falling for years, and companies have succeeded in keeping profits elevated by slashing jobs, cutting costs, expensing things that should be illegal. But you can only cut so far, and now profits are beginning to suffer.
Which begs the question: “These elements have existed for a while now - why would anyone stop buying stocks?” Honestly, I think J.Q. Public is running out of money. One thing to remember is that the 401K's and pension plans buy the bulk of stocks for their mutual funds. As the economy continues to slide, more and more folks will need that 401K money to pay bills. Small businesses will liquidate their 401K’s and IRA’s when they will close due to inflation and Obamacare. This year is on track for more than a $90B withdrawn, on top of the $100B that was withdrawn last year. Eventually those exiting the market will offset The Ben Bernanke billions pouring in – and a major league bear market will begin. Many readers have told me that raiding their 401K was the only way that they could send their kids to college. Toss in the global slowdown, the money troubles of Europe, and try as they might to keep the market "up" – I just don't think they can pull it off in the long run.
After we get whatever "bounce" we're going to get from an agreement on the ‘fiscal cliff’ (and the fact that we're entering the single strongest period for the market (Dec- Jan) ) – I sense the market heading lower for a long time (ending below 7K) starting in the spring of 2013.
For now keep your powder dry and sit on your hands. Wait for the turn, jump in and ride it up, and then go short next year. There's going to be some huge money to be made on the short side of things in the future.
In terms of investing your way OUT of this market. I hate to be a broken record by Gold and Silver have remained fairly stable vs the 1,000 point drop in the DOW (quite honestly) – so consider them safe-havens for your dollars.
Also, Dave S and Francis D reminded us that “DBA” the agricultural exchange traded fund (ETF) is about to produce its first “higher low” in a long time. It should use its moving average as support. Additionally, we see that the weekly Relative Strength Index (RSI) is about to become oversold, and this means that higher prices are likely to come in the months ahead. In addition to that, the moving average convergence divergence (MACD) index diverged from the falling price action earlier in the year, and this showed that DBA’s descent was likely coming to an end. That happened and now DBA has surged so much that the MACD’s lines are now above its zero line. This tells us that the likelihood of an uptrend forming and continuing is high. And with what we expect in terms of higher food prices in 2013 and beyond, we know that we’ll see DBA head much higher in the months ahead. So you may want to hedge some of your higher grocery bills and dining out costs by buying DBA – the agricultural ETF.
I continued to hide out in ‘cash’ over the past week – exiting SLW even. After our ‘Santa Claus Rally’ – please remember the list below – as they will come in handy in order to manage a bear market (ETF’s offered by ProShares):
- Short the DOW 30 – ticker symbol = DOG
- Ultra Short the DOW 30 = SDOW
- Short the ‘Financials’ – ticker symbol = SEF
- Ultra Short the Financials = FINZ
- Short the Nasdaq = PSQ
- Ultra Short the Nasdaq = SQQQ
- And if you LOVE SILVER = Ultra Silver = AGQ
My current short-term holds are:
- SIL – in at 24.51 (currently 22.34) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 165.80) – no stop ($1,714.30 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 31.35) – no stop ($32.36 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.