This Week in Barrons – 12-23-2012
“With a little help from my friend…”
Thanks to David S for the following: Four months after President Obama announced the “Buffett Rule,” he killed a proposal for building the Keystone XL Pipeline that would carry oil from the Canadian oil sands through Montana, South Dakota, Nebraska, Kansas, Oklahoma, and Texas. Many of us wondered why?
The original proposal was for the pipeline to be built over the Nebraska Ogallala Aquifer. Citizens of Nebraska (with the help of Warren Buffet) protested the construction of the pipeline over concerns that an oil spill would seep into the major freshwater source. This raised just enough eyebrows among skeptics, and forced the transport of the new Bakken oil by rail. Well, Warren Buffett just happens to be the largest owner of railroads in America, owning all of Burlington Northern Santa Fe. As it turns out, it is not just natural resources and aquifer purity that Obama had in mind when sealing the fate of the Keystone XL Pipeline; but rather it appears there were far more relevant numbers that determined Obama's decision.
Obama’s decision to reject TransCanada Corp’s Keystone XL oil pipeline permit was a huge benefit to the Burlington Northern railroad. According to a Bloomberg report last week:
- Crude oil and petroleum products transported by U.S. railways during the first half of 2012 increased 38% over the same period in 2011.
- Rail deliveries of crude oil and petroleum products in June alone jumped 51% over a year earlier.
- Burlington Northern is the biggest railway mover of U.S. crude, and the company's car loadings of crude oil and petroleum products increased 60% during the first six months of 2012.
Since Burlington Northern’s stock hit bottom in early 2009 (at the time when Bakken oil production just started to take off), their stock has skyrocketed. Warren Buffet has done it again, even if he had to scratch Obama’s back to get it.
If you run money and you’re not beating the S&P, you’d better be selling your gains (and that includes your gains in gold and copper) – in order to take advantage of any post-fiscal cliff run higher. Well there are a ‘ton’ of upside-down money managers that are scrambling to improve their cash positions surrounding the fiscal cliff. And even if that all gets worked out – many are selling in order to lock in known tax rates, rather than play roulette and guess what they might have to pay in the future. Factually, there is so much demand for physical silver that it has currently out-stripped supply. So people are:
- selling to raise cash,
- selling because they’re scared of the fiscal cliff,
- selling to pay lower taxes,
- trying to buy physical silver,
- and JPM is still illegally naked-shorting silver.
I listened to David Tepper talk the market higher on CNBC this week. At the same time I was reading the Fed’s research paper called The U.S. Recession Probabilities Index. Since 1967 it has been 100% correct in calling every US recession. This year’s report came out the day ahead of the Obama election win and said: "The US will enter a recession in 2013." So, the Fed is saying that we’re going to enter a recession DESPITE printing $85 Billion a month.
We do have one other financial nightmare to navigate. The U.S. Government's bills are cut into two sides: mandatory spending and discretionary spending. Mandatory spending is the element that we MUST pay – such as interest on our national debt, Social Security, Medicare, Medicaid, and certain defensive projects. Discretionary spending is the element we could ignore – such as pet projects, wars, research grants, and Government perks. When it's time to talk about cutting spending it is always about the discretionary side of the ledger. Well, our problem is that currently our Government’s income (coming in from tax receipts) does not cover our MANDATORY spending. Clearly the only offset to that is to print more and more money – making gold and silver look that much better.
Currently we’re still trapped by the fiscal cliff grandstanding. This coming Monday the market closes early at 1pm. The market will be closed on Tuesday. The market is open on Wednesday but volume will be extremely light. However, we often see huge moves on incredibly light volume days because one big firm can place one large bet and move the market. So, despite the volume being so low, don't think things can't move and move big – because they can.
I want to end with my wishes for you all. It's Christmas, a special time for so many millions, and I hope you enjoy it to the fullest. I personally look forward to it each year.
My current short-term holds are:
- DIA – Call Options for Jan 132’s – in at 1.91
- SPY – in at 141.97 (currently 142.79) – stop at 142
- VALE – in at 18.52 (currently 20.10) – stop at 19.45
- ALTR – in at 34.40 (currently 34.49) – stop at 34.00
- SDRL – in at 37.49 (currently 37.21) – stop at 37.00
- MS in at 18.50 (currently 18.92) – stop at 18.00
- RGR in at 42.00 (currently 43.44) – stop at 43.00
- SWHC in at 8.00 (currently 8.10) – stop at entry
- SIL – in at 24.51 (currently 22.24) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 160.35) – no stop ($1,659.10 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 29.00) – no stop ($30.14 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.