This Week in Barrons – 12-9-2012
The
Fiscal Cliff – Watch that First Step!
We're
seeing a market torn apart by a lot of opposing forces. The big one is the threat
of the ‘fiscal cliff’, where on January 1st (if we don't get a
compromise) there will be higher taxes and automatic program reductions put in
place. This is why many companies have
decided to pay out dividends now, so that they're taxed at this year’s rates
versus possibly being taxed at the much higher rate next year.
But with the path
we’re on as a country, it really doesn’t make that much of a difference whether
we hit the “fiscal cliff” or not. Certainly
if both sides of the aisle stand staunch and don't reach a compromise, the ‘fiscal
cliff’ will speed up the arrival of the nightmare. Both sides are bickering over tax increases of
a few hundred Billion dollars over 10 years.
Excuse me, but we ‘racked up’ $1.6 Trillion in debt THIS YEAR. This was simply tossed on to the $15.7 Trillion
in debt that we already have – and then people realized that we’re going to hit
our spending ceiling again (very soon) and we have to raise the debt level (again).
Treasury
Secretary Geithner suggested this week that we don't even bother Congress about
the debt ceiling any more, that we should have an unlimited debt ceiling. If that wasn’t so sad, you could laugh – but allow
me to explain. Let’s assume that the US
was a stand-alone nation – creating and consuming everything within our
borders. As more and more people decided
to use the benefits of our social programs such as Disability, Social Security,
Medicare, Medicaid, Food stamps, Welfare, Unemployment payments, etc. –
eventually there would be a problem when outflows of dollars from those funds
exceeded the inflows created by hard-working people. At that point the Government would have to
resort to printing more money. But given
we’re just trading within our ‘four walls’; a nation could live like that for a
long, long time. Of course in the end,
the hard-working folks would look at themselves and say: “What – are we
nuts? Why are we working when we could
do nothing and get paid too?" And eventually
the nation would die, NOT because of the debts or even the inflationary
printing, but because no one would want to work to produce the fuel and
products we all need.
Now,
because we are NOT an isolated nation – but rather trading in our currency on a
daily basis – the question that always comes up is: “What is that dollar
worth?” I.E. when we buy oil from Saudi
Arabia and pay in dollars, they constantly evaluate the value of that
dollar. If the dollar was backed by
something physical, then the foreign producers could feel good about accepting
them for their hard work and resources. But
when Mr. Geithner says “let’s have no debt ceiling and just borrow for as long
as we wish”, every trading partner on the planet is looking on in disbelief. Saudi Arabia doesn’t want our inflated dollars
any more. They still drudgingly accept
them, because that is the way the system is set up around the world, but we see
some interesting things taking place. It
is now common for virtually all of our trading partners to instantly take those
dollars and rush out and buy up "real things". For example the Chinese are using dollar
denominated assets to buy up land, buildings, toll roads, oil, coal, iron, gold
and silver. Brazil has gone so far as to
call us a currency manipulator, and has imposed tariffs on our imports.
The
reason we're facing an economic crisis of epic proportions is not simply: (a)
because we're becoming a socialist state, (b) because many of our jobs have
gone idle and our standard of living is falling, (c) because of our spiraling
debts, (d) because of our horrific inflation in food, education and medicine,
but rather it’s because the rest of the world is tired of selling us goods and
services in return for paper that is constantly worth less.
Our
politicians can argue over the fiscal cliff all they want, but it’s like the Captain
of the Titanic wondering where to place the deck chairs. Yes, falling over the fiscal cliff will cause
some sharp and immediate economic pain, but in the grand scheme of things it
changes nothing. This is why I've been harping
on Gold since 2001, and Silver since 2007. By the way, if you live in California, New
York City, or Hawaii, and if we go over the fiscal cliff, the highest marginal
taxpayers will be paying over 50% of their income in taxes. How long do you really think individuals and
corporations will continue to pay over half their income in taxes? You will see more ‘off-shore’ banking and tax
loopholes being taken advantage of than ever before. Government revenues won’t increase – but
rather individuals and corporations will just manage their businesses
differently.
The Market:
First: The Ben Bernanke is going to give
us a Christmas present this week by replacing the outgoing "twist"
with some new version of pumping billions in to the system. (Yawn). Despite the Billions that The Ben Bernanke has
printed:
-
The DOW is at the same level it was in March,
-
500,000 people stopped looking for work, and
-
370,000 people had to sign up for first time unemployment.
Unless
The Ben Bernanke replaces the twist with something much bigger, the market will
yawn about it. We already know what $80
billion a month has given us. Will anyone
rejoice over $85 B – nope!. But if Ben
shorts out and goes crazy, hiking the buying to say 100 billion, then yes – the
market will pop higher on the news.
Secondly: The Unemployment Data released on Friday
was nothing short of embarrassing. According
to the Bureau of Labor Statistics we made 146,000 new jobs last month and
unemployment fell to 7.7%. Are you
kidding me? You're asking me to pay no
attention to:
-
the adjustments in the past 2 reports which removed 50,000
jobs from each monthly total,
-
the household income which fell - again,
-
the unemployment rate going down because of another wave of
folks leaving the job market.
These
numbers are basically fake, and will be revised over the next several months.
Finally: For all you chartists, if you look at
the big picture over 20 years, you see a pretty classic "jaws of
death" pattern – basically a huge megaphone. In the past this has always led to a massive
melt down.
Soon we will be entering the sixth year of all of the QE-type
gimmicks – that have been used to keep us treading water. During that time food stamps have hit an all
time high and continue to grow, and the amount of people signing up for
disability has outpaced the amount of folks getting a job. We now face: (a) higher taxes, (b) increased costs
associated with Obamacare, and (c) foreign nations not wanting our treasuries
or our currency. It is my opinion that
at some point in 2013, the market will start to head south, and will do so in
spectacular fashion.
But
in the short term, we're still in a situation where everyone wants to end the
year on an up note. December and January
are usually two of the best months of the year for stock gains, and you can see
how badly they want it to happen. It is
still my guess that a "deal" announced concerning the cliff, will
send stocks sharply higher and yes we'll end the year "up" and
probably see good gains in January going into February. I’m trying to "lean long" for that
very possibility. I think we "should"
have one more market spurt higher and it could be a really strong one. But that will mark a multi generation high and
we'll sink considerably lower from there. However, if we don’t get a ‘fiscal cliff’ deal by Christmas, I suggest
we could see a massive sell off in a short time.
Tips:
We
sold out of AAPL for a nice profit this week – and depending upon Monday’s
action – may dive back into it at the 535 level.
I’m beginning to hear more and more of this type of
discussion that David S brought to my attention: Although gold prices hit a one-month low ($1,701.55
an ounce) this week, Peter Schiff (CEO of Euro Pacific Capital) and Anthony
Grisanti (President of GRZ Energy), think that gold prices are going to come
back with a vengeance. Peter Schiff
says: “I think gold will go $3,000 to
$5,000 higher. A lot depends upon how
much money are we going to print? How long are we going to try to keep interest
rates artificially low? And how long is
it going to take before the world realizes that we’ve been conning them? The Federal Reserve’s massive easing over the
past four years and the exploding U.S. debt burden are very bullish for the
precious metal. We're asking the world
to give us money indefinitely so that we can live beyond our means. When the world figures this out and decides
it doesn't want to play this game anymore, it's going to mean a much bigger
drop in the dollar. Consequently the Fed
will have to print even more money to keep interest rates artificially low, and
gold prices will skyrocket."
My current short-term holds are:
-
AAPL – in at 525.35 (currently 586.30) – stop
at 572.00
-
DBA – in at 28.30 (currently 28.82) – stop at
entry
-
SIL – in at 24.51 (currently 22.46) – no stop
yet
-
GLD (ETF for Gold) – in at 158.28, (currently
165.14) – no stop ($1,704 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 32.03)
– no stop ($33.05 per physical ounce).
To follow me on Twitter and get my daily thoughts and trades
– my handle is: taylorpamm.
Please be safe out there!
Disclaimer:
Expressed thoughts proffered within the
BARRONS REPORT, a Private and free weekly economic newsletter, are those of
noted entrepreneur, professor and author, RF Culbertson, contributing sources
and those he interviews. You can learn
more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>
.
Please write to <rfc@getabby.com>
to inform me of any reproductions, including when and where copy will be reproduced.
You may use in complete form or, if quoting in brief, reference
.
If you'd like to view RF's actual stock
trades - and see more of my thoughts - please feel free to sign up as a Twitter
follower - "taylorpamm" is my
handle.
If you'd like to see RF in action -
teaching people about investing - please feel free to view the TED talk that he
gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0
To unsubscribe please refer to the
bottom of the email.
Views expressed are provided for
information purposes only and should not be construed in any way as an offer,
an endorsement, or inducement to invest and is not in any way a testimony of,
or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not
registered and licensed brokers. This
message may contain information that is confidential or privileged and is
intended only for the individual or entity named above and does not constitute
an offer for or advice about any alternative investment product. Such advice
can only be made when accompanied by a prospectus or similar offering
document. Past performance is not
indicative of future performance. Please make sure to review important
disclosures at the end of each article.
Note: Joining BARRONS REPORT is not an
offering for any investment. It represents only the opinions of RF Culbertson
and Associates.
PAST RESULTS ARE NOT INDICATIVE OF
FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN
INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING
HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT
SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF
INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS
MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING
INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance can
be volatile. An investor could lose all or a substantial amount of his or her
investment. Often, alternative investment fund and account managers have total
trading authority over their funds or accounts; the use of a single advisor
applying generally similar trading programs could mean lack of diversification
and, consequently, higher risk. There is often no secondary market for an
investor's interest in alternative investments, and none is expected to
develop.
All material presented herein is
believed to be reliable but we cannot attest to its accuracy. Opinions
expressed in these reports may change without prior notice. Culbertson and/or
the staff may or may not have investments in any funds cited above.
Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.
R.F. Culbertson
No comments:
Post a Comment