This Week in Barrons – 1-6-2013
The Devil’s in the Details:
Congratulations to my son Morgan for being admitted to Carnegie Mellon University! They’re getting a terrific student.
Often the market is viewed as a "random walk" that moves up and down on the whims of the collective wisdom of millions of investors. That may have been the case years ago: (a) before high frequency trading, (b) before major banks set Libor rates, and (c) before banks were fined for money laundering for drug cartels. And just as Wall Street has many underlying threads and currents, so does that ‘fiscal cliff’ deal. All we have heard for two days was that the President got his victory by raising taxes on the evil rich, and the middle class was spared any tax hikes. Ah, the Devil’s in the Details. Inside the fiscal cliff bill, there are not only additional payroll taxes and health care taxes for ALL, but approximately $76 Billion in tax credits to special interest groups – some are listed below:
- Former Senators John Breaux (D-La.) and Trent Lott (R-Miss.) – a pair of rainmaker lobbyists, succeeded in getting the Senate to extend a tax provision that allows multinational corporations to defer U.S. taxes by moving profits into offshore financial subsidiaries. This "active financing exception" is the main tool GE uses to avoid nearly all U.S. corporate income tax.
- Diageo (a liquor giant) also retained Breaux and Lott to win extensions on two provisions benefitting rum making in Puerto Rico.
- CTP represented green energy companies like GE and the American Wind Energy Association, winning extensions and expansion of the production tax credit for wind energy.
- CTP also won for The Motion Picture Association of America, an extension on tax credits for film production.
If all that doesn’t raise your blood pressure, how about GE (who’s CEO – Jeff Immelt is on Obama’s Economic Advisory Board) reported U.S. profits of $5.1 Billion in 2010 ($14.2 Billion worldwide) – and paid $0 in U.S. taxes. In fact, they claimed a $3.2 Billion tax credit due to “an aggressive strategy that mixed fierce lobbying for tax breaks and innovative accounting – enabling GE to concentrate its profits offshore” (as quoted to a New York Times reporter).
So, Obama has NO PROBLEM letting a huge corporation (that takes in tens of billions of dollars) go virtually tax free, but shame on the small business guy that after 20 years finally makes his $400,000. Let’s fine him, tax him, and take away his incentive to create jobs. Let’s convince the masses that HE’S the problem. He’s that wicked small business guy that just isn’t paying enough.
When I looked at the details in the Hurricane Sandy Relief Legislation, I found that Harry Reid’s senate committee also loaded it up with pork. The ‘pork fest’ includes many items – a few of which are below:
- $150 million for the National Oceanic and Atmospheric Administration to spend on fisheries in Alaska,
- $207 million for the VA Manhattan Medical Center, and
- $10.78 Billion for future public transportation improvements – not effected by Hurricane Sandy.
Honestly, we have desperate people in the Northeast that NEED help and our politicians load the bill with pork for their constituent friends. The Devil’s in the Details of what our government is doing – and it’s approaching lunacy.
So far, so good. For weeks I was convinced that if we would get the fiscal cliff out of the daily news, the market would love it and probably set us up for a shot at the "all time" highs. This week we saw a stunning 300+ point move as the DOW posted the single biggest New Year’s trading day ever!
200 points is all that it’s going to take to see if this market really can challenge the all time highs. There is a pretty stern triple top at the 13,600 level. If we can get over that, we will see a challenge of the old all-time high shortly thereafter. It’s amazing that in a market where our Fed is printing $85 Billion a month for bank ‘life support’ – we are challenging the stock market all time highs.
So, what happens now? I think we challenge the all time highs. I even think we get THROUGH them, and that opens a new can of worms. Why, because the market doesn't deserve to make all new highs here. This year’s earnings are going to stink. The only thing going for us is The Ben Bernanke's billions, which we almost lost the other day when some of the Fed members hinted that maybe they should back off QE in 2013. Well that's strong talk (but insanity) as our banks can’t afford the Fed to stop QE any time soon. All that remark did was to create a buying opportunity for gold and silver.
I tend to think we challenge DOW 13,600 fairly quickly. I also think we will (in some time) challenge the all time ‘down’ high of 14,164. If we get past that, we could see an enormous first half market move to 15,400. I also think that in 2013 we will also see the beginning acts of a very long, drawn out bear market. So I'm looking at 2013 as the "blow-off-top", and afterwards we go back and visit a much lower market.
For now, we lean long and (knock on wood) things are going about how I thought they might. Let us keep our fingers crossed and hope.
My current short-term holds are:
- HD – in at 61.53 (currently 63.20) – stop at 61.60
- FWLT – in at 24.77 (currently 24.82) – stop at 24.30
- VALE – in at 18.52 (currently 21.26) – stop at 19.45
- ALTR – in at 34.40 (currently 35.23) – stop at 34.70
- MS in at 18.50 (currently 20.19) – stop at 18.00
- RGR in at 42.00 (currently 47.34) – stop at 45.50
- SWHC in at 8.00 (currently 8.81) – stop at 8.40
- SIL – in at 24.51 (currently 22.52) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 160.44) – no stop ($1,648.10 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 29.19) – no stop ($29.90 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.