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!
The
Market:
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.
Tips:
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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