This Week in Barrons – 12-30-2012
My Dream for 2013
Before I start, a major congratulations to my son for being on the front page of the Chicago Sun Times’ Money section (he’s the one in the blue shirt):
We all know the bickering and posturing that is going on surrounding the fiscal cliff. And there’s certainly no shortage of raw, ugly, economic facts to talk about and dissect. But how on earth could things have gone this wrong on so many levels? Many pundits compare the U.S. to ancient Rome:
- Rome was once successful, industrious, educated and progressive.
- Rome invented marvelous things, beautiful artwork, amazing architecture, and had a simple form of democracy.
- But as their ‘empire’ spread further and further from home, it took too much money to support all the people they had conquered.
- It was this ‘spread’ that sapped away the strength of the empire.
- Eventually they had to destroy the value of their coinage, and the empire folded in upon itself.
But honestly, there is NO side-by-side comparison here. Freedom for everyone in the U.S. is a huge differentiating factor. Freedom doesn't just bring us the ability to choose to do this or that, but ultimately creates wealth. When people are free to develop their mind’s desires, to create something out of nothing, to dream as big as they dare, it ultimately leads to a concept, then planning, then development, then production and ultimately income. History will look back on the US and try and figure out what went wrong. What was the ‘One Thing’ that allowed others to pass us by? Was it:
- The removal of competition from our schools,
- The concept of economic equality for all,
- Our overbearing "nanny state" that won't let you do anything for fear you'll skin your knee, or perhaps
- Our over-promised politicians that promise everything to everyone and under-deliver to many.
As I reflect, I wonder if the biggest single reason for our current ‘secondary status’ is that (for the most part) we don't cherish what we had – because we've never had to suffer. I think this fiscal cliff garbage is just that. It’s a sideshow. My hope is that once we get whatever economic crash, meltdown, bank holiday, or currency reset that we’re going to experience – WE pick ourselves up and:
- Chase Excellence rather than mediocrity,
- Use technology to further Education rather than playtime,
- Learn to act Responsibly again, and
- Praise Individuality over social sameness.
That’s my dream for 2013!
In the final moments of trading on Friday there was a pretty serious futures "crash" that dropped the market like a sack of bricks. The market has a way of pushing Capitol Hill to make decisions and that's exactly what it’s doing. Politicians know that the masses revolt against them when their 401K’s become 201K’s (cut in half). But thus far, there is no deal that anyone is talking about. Without a deal, the market could very well pout this coming week. I think Ron Paul said it best on CNBC: “There’s very little difference in everyone’s plans. This isn't about fixing problems or cutting spending or helping the American people. This is posturing, political gamesmanship, and grandstanding.”
In any event, I thought that the market would put in one last run up into the year end, extend that for the "January Effect", and then roll over and start heading considerably lower. On November 16, the DOW was at 12,542, and by December 18th the DOW was at 13,365 and looking good. Well, due to the fiscal cliff talks going nowhere, we've lost over 400 points before year-end. I must admit that I was wrong. I never thought that we would see political brinksmanship at this level. So, we're either going over the cliff, or we will get a ‘Greece-style’ agreement that does nothing but ‘kick-the-can’ and leaves elements like ‘The Debt Ceiling’ just waiting in the wings.
Has the market already entered a real and lasting pull back, or is it going to still give us one more hallelujah push higher once we get past this? Our Fed is the one element that makes predicting today's market a real adventure:
- The Fed publicly stated that it's going to keep rates low until unemployment is below 6% (it's at about 15% now).
- The Fed is willing to push $85 Billion a month into the primary dealers (banks) and that money always goes into the market.
- Currently we have 10-Year Treasury Notes paying 1.12% - forcing pensions, insurance companies and even other nations to buy stocks instead so they get some form of return.
The Fed has been leaning on the gas pedal since 2008, and the market has responded going from 6,600 to 13,600. Unfortunately it is a ‘jobless’ recovery, and the question has become: Can The Fed’s $85 Billion a month, counter-act the hundreds of billions that have been pulled out of equities? Can the market really fall for thousands of points with The Fed printing money at an even faster rate?
I still believe there are some points to be gained when a fiscal cliff deal is done. But instead of it pushing us to challenge the old highs, we might simply see a couple up-days. It is a great time to do a whole lot of nothing, and just sit tight for a bit. The market is giving a lot of mixed signals, and the politicians are adding to the mix quite nicely.
As a guest on CNBC put it on Friday, “If we don’t go over the fiscal cliff, the Fed is going to print a lot of money. If we go over the fiscal cliff, the Fed is going to print a lot MORE money. I’m investing in gold!” But there is an issue here. Physical gold and silver are becoming tougher to get. Lead times are getting longer, and the premiums are becoming larger. While the price of silver may drop below $27 per ounce, I wouldn’t be shy about buying some right here – with the price at $29.92. Also, in terms of miners in gold and silver – Yamana Gold (AUY) – although beaten down like all miners, I would be a buyer with a move over $17.15.
This past week I cashed out of my DIA call options, as well as the SPY ETF with very nice gains. With the fiscal cliff rumors swirling, I jumped into SDS – a ProShares Ultra Short S&P 500 ETF (it’s value increases as the market goes down) – that because of the fall on Friday, it did very well for me as well. I’m also noticing that the ‘firearms’ makers are coming back to life – both RGR and SWHC.
My current short-term holds are:
- VALE – in at 18.52 (currently 20.45) – stop at 19.45
- MS in at 18.50 (currently 18.58) – stop at 18.00
- RGR in at 42.00 (currently 43.94) – stop at 43.50
- SWHC in at 8.00 (currently 8.20) – stop at entry
- SIL – in at 24.51 (currently 21.95) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 160.74) – no stop ($1,654.90 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 29.10) – no stop ($29.92 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.