This Week in Barrons – 3-10-2013
"We all know this going
to end badly, but in the meantime we can make some money" - Jim
Cramer 3/5/2013
Jim Cramer said this, echoing Stanley
Drukenmiller (famed investor) telling the morning crew on CNBC how bizarre things
have gotten. This has to be one of the
most honest things Jim’s ever said. And
in the past week, quite a few people are looking around and asking: “My
neighbors still don’t have real jobs, but the stock marketing is reaching all
time highs. How can that be?” Considering the economic reports are dismal
at best and horrid at worst, how can the market keep moving up?
The economy is in a spiral wormhole.
That is to say, if the Fed does not
continually shoot juice into the system, our economy will go right down the
toilet. And to The Ben Bernanke’s
credit, he’s made it clear that he will use "every manner possible, both
conventional and non-conventional" to keep the economy from a deflationary
depression. Since they have admitted to
us they will pull out all the stops, and do things that are NOT in their
charter, it becomes a bit easier to understand why the stock market can do
things (in the short term) that defy logic.
The money the Fed prints out of
thin air is a lifeline. It is like a
heroin shot to a junkie. It does not
create demand. It does not create
fundamental economic soundness. And
(often) it chases away real investment. This
is why after years of bailouts, quantitative easing, and every manner of Fed
maneuvering, we still have unemployment hovering at unacceptable levels and
wages stagnant. Monetary stimulus keeps
things afloat, but it's not real growth. And the second it stops so does the economy.
A short history lesson: 45 years ago the U.S. economy was an engineering
and manufacturing powerhouse. We could
churn out more product of higher quality than anyone else in the world. We exported that product the world over, and
our country became rich. But the ‘powers
that be’ wanted a more global government, and (in a nutshell) they changed
things. It is NOT an accident when the largest
manufacturing powerhouse in the world falls apart. It is NOT an accident when the world's largest
creditor nation is now the world's largest debtor. We were changed into a consumption society. Instead of becoming richer by exporting goods
around the globe and taking in the profits, we are currently a service-focused
society. And now that the 45-year
experiment in fiat currency is a failure, those same ‘powers that be’ have absolutely
no choice but to continue to print, monetize and debase our currency. Just last week The Ben Bernanke calmed and
reassured Congress by telling them that he has no intention of pulling back the
punch bowl. That statement alone pushed
us up and over the ‘all time highs’ on the DOW.
But the issue with being a
consumption society is that we need people to consume. If people think that the economy is
crumbling, they won't spend their money, and instead they will try and save it.
Which is exactly what they SHOULD do, but
if people don’t spend – our economy falls apart. So despite the truth, there is a necessity to continue
the illusion that things are lovely in order that people spend money they
really don't have, on things they really don't need.
This gets more interesting with
‘The Wealth Effect.’ In 1999 several of
us at CMU were thinking – Is the stock market a reflection of the economy or is
the economy a reflection of the stock market?
Studies have confirmed that a rising stock market makes people feel better,
wealthier, and spend more (The Wealth Effect); therefore, wouldn’t it make
sense that causing the stock market to go up – would naturally help us avoid a
recession / depression? Factually, most
Americans own their stocks in 401k plans – yet 97% of the 401k plans have no
ability to ‘go short’ in the market. So
the only way Americans can make money in the market – is to have the stock
market go up.
Finally, let’s consider zero interest
rates. Does anyone really think that
interest rates are at ZERO in order to stimulate the housing industry? Rates are at zero to force ‘savers’ to put
their money into ‘risk assets.’ It is
sickening that folks saved all their lives and built positions of cash that
should be returning them 6+%, and instead they’re getting 1%. Inflation is eating them alive. Even foreign governments and pension funds (that
were happy getting 4 or 5% in our Treasuries), are now forced to buy dividend
paying stocks. And then, whenever the
market finally does roll over and fall, the guru's will call for a ban on short
selling.
And if anything (ever) does go
wrong – well - after the market crash of ‘87, President Reagan created the
"President’s Working Group on Capital Markets". These are the big wheels of finance such as
the treasury secretary, and the heads of the major investment banks. Their charter allows them to find ways to improve
the economy. For the past several years,
this group (affectionately referred to as the Plunge Patrol Team) buys billions
of dollars worth of market futures whenever they want the market to rise.
So we are all witness to the
single largest transfer of wealth this planet has ever encountered. Remember the phrase, “Too Big to Jail.” Attorney
General Eric Holder, the top U.S. law-enforcement official, finally admitted
this week that bank executives truly are above the law and may commit crimes
with virtual impunity. Appearing
before the Senate Judiciary Committee, Holder acknowledged under questioning by
Republican Chuck Grassley of Iowa, that the megabanks are too big to jail. “I am concerned that the size of some of these
institutions becomes so large that it does become difficult for us to prosecute
them,” Holder said.
Remember Jim Cramer: “We all know this going to end badly, but in the meantime
we can make some money.”
The Market:
The market has gone up for 8 of
the past 9 sessions – for approximately 600 points. During that time we went ahead and punched
through the all time highs of October 2007.
We ignored the vaunted sequestration.
We sidestepped Rand Paul's filibuster.
I don’t think anything can stop this train.
After living thru the market
"melt up" of 1999 – 2000, I never thought that I would see another
one in my lifetime, but this run-up is eerily similar.
-
Back then companies with no earnings
were gaining 50 points a week. This time
a Country with no earnings, savings and a debt load that is impossible to deal
with, is gaining 50 points a day.
-
Back then Jim Cramer was telling us
that it was a ‘brave new world’ where earnings didn’t matter. Today Jim Cramer is telling us that the
impending doom doesn't matter, so let’s make some money.
Is there a pattern here?
On Friday I sold some of my short-term
holdings. It might turn out to be a
stupid maneuver, but my feeling was that they were probably going to keep the
market green on Friday in order to shout about how wonderful everything is over
the weekend. Then on Monday (after 6 up
sessions) they begin to skim a little profit off the top. Heck, even in the tech mania bubble we'd at
least get pullbacks, and we’re sorely overdue for one now.
But what is the target of this
particular bull run. Since the DOW has
punched through the last all time high, it has nothing to prove. The S&P still hasn't hit its all time high
of 1,565, but it seems fairly certain that we'll get those last 14 S&P
points. But what happens when both set
all time highs, do we just continue higher?
After all, we are witness to a Central Banker with a printing press –
who is using it to the tune of $85 Billion per MONTH. On that alone, there’s no reason that this
market can’t go up another 2, 3, or 4 THOUSAND points. But:
-
What if more Cities in the US (like
Detroit) start to implode?
-
What if global currency activities
push rates up?
-
What if The Ben Bernanke increases his
money printing from $85 Billion to $100 Billion to reign in these rates?
-
Isn't it at least theoretically
possible that the market continues to go up, and up, and up beyond anyone's
imagination?
This is going to end badly, but
in the meantime, virtually anything could happen. We could certainly go up for the next two
years with just the tiniest of 4% corrections now and again. Or the velocity of money could increase and inflation
could break out. Only two things will
stop this market: (a) when The Ben Bernanke lets off the gas pedal, or (b) when
Inflation breaks out and begins its push for "hyper".
I think we may get a little
down ‘wiggle’ on Monday, but I suspect any dip will get bought and we'll see
that S&P high within a few weeks. We
are all forced to lean long into this, despite knowing we're doing it for all
the wrong reasons.
Tips:
The
past week we sold out of HFC (+2.00), AXP (+1.50), and ADSK (+0.40). I’m watching SNDK over 52.10, CMI over
120.00, COST over 104.00, CLF over 25.00, and JOY over 63.00.
My
current short-term holds are slim indeed and mostly underwater:
-
DE – in at 89.39 (currently 90.63) – stop at
entry
-
SBUX – in at 56.99 (currently 58.61) – stop
at 57.50
-
SIL – in at 24.51 (currently 18.24) – no stop
yet
-
GLD (ETF for Gold) – in at 158.28, (currently
152.57) – no stop ($1,576.60 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 27.99)
– no stop ($28.90 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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