This Week in Barrons – 2-10-2013
The Year of the Snake:
On Saturday, China welcomed the arrival of the Year of the Snake with firecrackers, fireworks and a blaze of good fortune. The Chinese zodiac (which repeats every 12 years), has deep spiritual meaning for the hundreds of millions that live in the East. In fact, families will plan weddings and even births around the mystical powers of the various creatures that symbolize their astrology.
The "age" that just passed was that of the dragon. The dragon is often thought of as lucky, but the snake is very, very different. In the past, the “year” of the Snake has contained:
- The 1929 stock-market crash,
- The Japanese attack on Pearl Harbor,
- The killing of over 3,000 students in China's Tiananmen Square,
- And the September 11th bombing of the World Trade Towers.
Singapore's Grand Master Tan Khoon Yong of Way OnNet Group said: "This is a disaster year. A lot of things will not go smoothly. The Euro may be in trouble, and the European Union itself may be threatened by division as soon as May.”
Hong Kong astrologer Chow Hon-Ming sees a disharmonious May causing an ongoing dispute between Japan and China possibly escalating into a brief war, as the two snakes are going to clash. "May is known as the snake month. And since it’s the Year of the Snake, between May 5 and June 6, these two snakes will meet and possibly go to war.”
It seems Snake years are marked by major, transformational change. But can we really place any credence on some astrological sign? I'd say the chances are pretty good. If you take a quick glance at the world and sheer lunacy that is developing, it would be hard to NOT imagine something ugly coming this way. In the past several weeks:
- Venezuela (an oil-producing nation) announced the devaluation of their currency by 46% overnight.
- Japan announced an end to 20+ years of deflation, and have targeted 2% inflation as their goal. To get there, they must print trillions of yen, which devalues the yen - just like Venezuela.
- US car companies (especially ‘Government Motors’) will require further currency devaluation – in order to keep pace with Japan’s devaluations and Toyota’s price decreases. This should really heat up the ‘race for the currency bottom.’
- Evidence is growing that assets are being pledged as collateral – 50 or more times – for the exact same asset. Remember the housing crisis of 2008?
- Germany has decided to give the world 7 years to actually produce and deliver it’s ‘gold’. Why 7 years? Because they know that the world doesn’t have it. Germany is being nice and letting the Central Banks save face, instead of panicking the world.
So could 2013 usher in a bad upheaval (or two) in Euro land? I'd be awfully surprised if it didn't. The year of the Snake is described as cunning, sly, and mischievous. And, when I look and see where the markets are, and think about the real world situation, it is almost a "given" that something is going to go really wrong.
With all the Central Banks printing money, and using every scheme imaginable to inject money into the US system without causing too much inflation, I’m surprised that more countries haven’t grown tired of the US. Like China, Russia, and now Venezuela – there is going to be a renewed "currency war" and the first shots have already been fired. If you remember back to the discussion we just had about the "velocity" of money, you realize that at some point – a huge percentage of that cash is going to rush forth, flood the system, and deliver hyperinflation. Might 2013 be that year?
So how do we deal with all of this? One thing we know is that the market has doubled from its lows due to rampant money printing. And as long as The Ben Bernanke keeps shoveling $85 Billion a month to the banks, the market has to continue up. That money must go somewhere and it usually ends up in the markets. So leaning long isn’t a bad strategy – just know that when the end comes, it could unravel quickly depending on which string is ‘pulled’. In other words, if the end is simply monetary velocity picking up steam; then we will have time to back away. If however, something more urgent happens, then that could cause an immediate market crash.
When the market tops out (whether that is at DOW 14,500 or 16,000), we will need to "short" the resulting down trend. I remember when tech stocks of the 90’s were gaining $20 every day; the best position to take was shorting the market. Put options were gaining thousands of percent. It is my thinking that the lion’s share of the gains will (once again) be on the "way down" from whatever peak we set. With that in mind, if you don't understand put options, or if you don't know how to short a stock – please go learn. It’s not complicated, and I can make the argument it's much safer than being long. In 2000, over 250 stocks that traded over $200 per share went to $1 or less over a short period of time.
In terms of metals, don’t be misled by platinum and palladium. Both platinum and palladium have made spectacular gains lately, but they are not flying higher due to money printing. They are going higher because of the demand for new cars. Manufacturers need platinum and palladium to use in the catalytic converters. Moreover, with some of the political unrest in the mining countries, a lot of platinum and palladium production is off line, producing a scarcity in times of high demand. Both of these metals will come back down when demand stalls. I view gold and silver as a hedge against global troubles, currency wars, and hyperinflation. You can certainly trade platinum and palladium – just don’t own them (as you would gold and silver) as your wealth / currency / inflation hedge.
Yes, 2013 is the year of the Snake. Please tread carefully, and watch where you step – because snakebites really hurt!
Lately, we’re seeing market chop, and lots of it. We came into February with a triple digit DOW gain – then on Monday we gave it back – and then Tuesday it swung the other way again. On Wednesday, Thursday and Friday we sort of ran in place. All in all, despite all the big swings, the market is pretty much flat on the week.
When you look at a chart of the DJI (the Dow Jones Industrials), you will see 6 sessions where the market went "sideways". That won't last forever. We are going to either dramatically ‘springboard’ higher or sharply ‘roll-over’ lower. As much as the evidence would point to a pull down, the way the market has defended every dip suggests that they're just building a base for another push higher. And that push will take us up to challenge the all time highs. Yes we're still overbought. Yes some high-profile investors have made some huge bets on the VXX going higher. [The VXX is a volatility index that normally goes higher in times of distress and markets falling.] But that said each intraday dip has been brought-up and ended well off it’s lows by the close of trading. It looks like they want more.
A sideways chop often portends the end of the recent trend; so the best play (this week) has been "not to play". Keep your powder dry, and don't overextend. In these times you wait on the market to make its next move, and then go. It’s difficult to watch the market come roaring out of the morning gate, and not jump on board for the ride. Unfortunately morning rushes have been brought back down, and morning dips have been brought back up. Lately, being long or short for more than a day has been trouble. So we wait.
If we see the DOW put in two daily closes over 14,025 I have to assume they're willing to push this higher. Until then, it's a simply a guessing game and I will pass.
But that doesn't mean we don't see some value here and there. Lately, I feel that Nokia (NOK) is looking like a decent long-term hold. They have a lot of cash. Microsoft is a major ally. And their main product is an inexpensive phone for the emerging markets. At $4 a share, we are going to pick some up this week and see what develops. It’s strictly a speculative play and not for the faint of heart.
I think we will know the market’s short-term direction by the end of this week. I think it’s going up from here, but I won't be surprised if I'm wrong and we finally pull back into a correction – because we’re ridiculously overdue for one.
The past week we sold out of ORCL (+$1.50), PAY (+$0.50), and HD (+$4.50).
Last week I mentioned the 3D printing space and received questions regarding who to buy, and where to enter the trade. 3D printing stocks are exciting, volatile, and potentially life-changing investments. As early investors you want to be exposed to this sector group, but you don’t want to buy in at the highs.
- I would look to purchase shares of 3D Systems (DDD) on a pullback – potentially as low as $55.
- I would look to purchase shares of Stratasys (SSYS) on a pullback – potentially as low as $75.
- I would look to pull the trigger on Proto Labs (PRLB) immediately as it’s under $44 per share. PRLB is the most “under-the-radar” of these three plays, which leads to the biggest opportunity. Their pullback is a confirmed signal and a reason to buy.
- XONE (the Pittsburgh company) debuted at $25 and immediately ran to $30. Congrats if any of you were in on it!
My current short-term holds are:
- SLB – in at 80.02 (currently 78.93) – stop at 77.00
- KSU – in at 95.03 (currently 94.73) – stop at 94.00
- SPN – in at 25.09 (currently 26.05) – stop at entry
- WFT – in at 13.50 (currently 13.17) – stop at 12.70
- PTEN – in at 19.78 (currently 23.38) – stop at 22.50
- MS in at 18.50 (currently 23.27) – stop at 22.00
- SPY in at 141.97 (currently 151.75) – stop at 150.00
- SIL – in at 24.51 (currently 21.10) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 161.45) – no stop ($1,666.00 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 30.43) – no stop ($31.42 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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