This Week in Barrons – 7-14-2013
Somewhere our Attitudes have Changed?
The Martin/Zimmerman case has been decided with a ‘non-guilty’ verdict – in favor of Mr. Zimmerman. I'm not going to debate the case, there's a court and a jury for that. But let’s focus on the big pictures – as this is the part that is most disturbing to me, and will shape our lives in the future. The Twitter and Facebook feeds are lighting up with talk of riots now that Mr. Zimmerman has been found not guilty. CNN has come out and said that the Zimmerman case should have never gone to trial. (Bill Lee, who testified Monday, told CNN's George Howell in an exclusive interview that he felt pressure from city officials to arrest Zimmerman to placate the public rather than as a matter of justice.)
This change in attitude is reflected in our economy. Coal companies (for example) didn't go from $75/share to $4.99 because they changed the way they were mining coal, or coal itself stopped working as a fuel. No, they were crippled because of the "change of attitude" – our President saying that coal companies will go ‘broke’ while on his watch.
I’m worried that our attitudes are changing – and often not for the better. Most people think we live in a Democracy. We don't, we live in a Representative Republic. Our forefathers set it that way for good reason. Just because more than 50% of the people believe in something, that doesn't mean they're right. Therefore, we elect a very good and decent representative, and their job is to evaluate our concerns and demands and go forth with what they believe is the right path. When everyone is honest and caring, the system works pretty well. But in times of attitudinal change – the system is prone to break down.
I normally talk about the economy and the insanity of our financial markets. But as a person I tend to hang out with ‘salt of the earth’ types. I get along better with people that have no pretense, and are sort of what you see is what you get. From where I sit, the ‘salts’ are beginning to grumble. Their employment situation is always in danger, the hours longer and the pay less. They see their medical insurance soaring, and wonder how they'll pay for their kid’s college tuition next year. The middle class ‘salts’ have been the bedrock of stability in the US for decades. If they decide they've had enough, the results will be disastrous. This divide is being reflected in numbers:
- The April Philly Fed manufacturing report came in well below consensus, on poor employment and new orders.
- Consumer confidence has just hit its lowest level since November of 2011.
- Corporate insiders are selling 9 times as many of their own shares as they are buying. The last time it was this high was in July 2011. Over the next couple of weeks, the Dow crashed about 2,000 points.
- Suicide rates among middle-aged Americans have risen sharply in the past decade, prompting concern that a generation of baby boomers who have faced years of economic worry and easy access to prescription painkillers may be particularly vulnerable to self-inflicted harm. And according to the Centers for Disease Control, more people now die of suicide than in car accidents.
- Over 47 million Americans (one out of every six) are on food stamps. That number has quadrupled in a decade.
- Over 54 million Americans are on Medicaid, up 60% since 2000.
- Almost 9 million Americans are on disability insurance, up 70% since 2000.
- Over 100 million Americans (one in three), are on some form of welfare program administered by the Federal Government.
- The average student loan debt is now $24,300 per person for the 37 million Americans with outstanding balances. Nearly 60% of the people who owe on student loans are over 30 years old, and almost 20% of them are over 50 years old. Total student loan debt is now $1 trillion, more than credit card debt.
- Total credit card debt is now $849 billion, or over $15,000 per household.
- Total mortgage debt stands at $7.9 trillion.
- All together, American consumers are more than $11.19 trillion in debt.
- In a late-June 2013 survey by Bankrate.com – it was found that 76% of Americans are living paycheck to paycheck. Less than 25% have enough money to cover six months of expenses; about 50% have less than a three-month cushion; and 27% had no savings at all.
- Another June survey by CashNetUSA found that 46% of Americans have less than $800 to their name.
- Costs for food and education are up 144% on an inflation-adjusted basis since 1980, but median family income has only grown 8% in the same time, and is actually down over the past 14 years.
These trends are increasing, not decreasing. Tensions are rising. And I worry that our President is not bridging the divide(s) but rather making them wider. The end result will be truly ugly if this keeps up. There's a game called "knockout" (often called Polar Bear hunting). This is where young, ethnic groups pick a random white person and sucker punch him until he is knocked unconscious or worse. They film it and then post it on line. I worry about the first time the ‘polar bear’ is armed and kills his 3 attackers in self-defense. The social and economic reverberations of an all out race war are something most people cannot fathom. No one wants it, except it seems for the media. But if indeed one comes, the situation will be very ugly. In Zimmerman/Martin – not a word about race should have ever been muttered. That must stop, or we are going to see massive troubles in the future.
With moments left on Friday afternoon, the DOW was lagging a bit, and was in danger of closing "red" by about 10 points. Well, after pushing the market to all new highs, they weren't going to spoil the weekend mood with a red close, and with a minute left we went green and ended the day "up". We all know what happened. The Ben Bernanke saw the market collapse when he started talking about removing QE, and quickly reversed himself saying that the jobs outlook and the economy in general seemed to demand even "more" stimulus. Wall Street instantly dove right back into stocks and here we are, at all time highs again.
On Friday, J.P. Morgan (JPM) and Wells Fargo (WFC) beat their earnings estimates by accounting manipulations. Meanwhile UPS (the package delivery company) came out and said that industrial America is soft and they would NOT meet their estimates. Yet the stock market is at an all time high. This is an anomaly that Mother Nature will not endure forever. This will end, and the only question is whether it ends in a week or 2 years.
Right now, the stock market is at an all time high, and unlike the last time that happened back in 2007 not many people (other than stock pimps like CNBC) are terribly excited. People feel that something is wrong with this picture. Sure, they're happy their 401k statements are looking good, but they aren't stupid. They see a lousy jobs picture, and feel the inflation at the grocery store and at the pump.
This rally is built purely on the idea of The Ben Bernanke printing money. We have the proof. When the Ben Bernanke himself mentioned an end to QE the market tanked. So, if we fell 800 points simply because The Ben Bernanke talks of ending QE, and we then gain it all back when he takes ‘back’ his statement – you can pretty much rest assured that those 800 points had nothing to do with the economy, earnings or any other fundamental other than ‘free money.’
Okay, so what do we do about it? If this market holds up for a couple days, we have to consider the idea that they're going to jam it even higher, and we'll have to hold our nose and lean even ‘longer’. I don't particularly like the idea of investing because of a fraud Central banker printing money, but you need to play the hand that you’re dealt.
On the 17th and the 18th, The Ben Bernanke will be addressing Congress at the once named: ‘Humphrey Hawkins’ meeting. This is where he explains (to all the politicians) his view of the economy. Every ear will be on him, dissecting every word for more hints that he's going to keep the pedal to the metal. If he gives them that belief, I have to believe we'll soar even higher. But, once again we are being held hostage to The Ben Bernanke. If he toughens up again and mentions tapering or reducing QE, we'll lose the 800 points we just got back in a flash. So, it isn't written in stone just yet that this big breakout is going to hold. But, we'll certainly have the answer to that by Friday.
If it's “All QE, All the Time” – we will need to get very involved. As crazy as this sounds, we could see DOW 17K in just a few months. If he gets timid on it, we will need to sit on our hands, or begin to short term trade on the short side. So, instead of investing over growth, earnings, profits, and a 5% GDP – we’re investing based upon whether a Central banker is going to print trillions. Good luck all, and be careful out there.
This week we purchased some SRPT, FB, AMAT and some JNJ. Our list of stocks that we’re interested in – if this breakout is secure – is a lengthy list indeed. These are simply chart patterns that are forming and looking attractive. We'll need to make sure of their earnings dates – because we don’t like to hold stocks over their earnings date. The list includes:
- RVBD over 17.35,
- NUAN over 19.60,
- NXPI over 32.50,
- NFX over 25.65,
- ATI over 28.50,
- MM over 10,
- RIG over 50.10,
- BAS over 14.20,
- BTU over 16.35,
- SSYS over 95,
- AXP over 78,
- BRCM over 35.08,
- INTC over 24.10,
- DDD over 50,
- ABT over 35.60,
- DECK over 56,
- FIVE over 40,
- ED over 59, and
- SLB over 78.00.
Obviously that is quite a list, but it’s a rough idea of what looks good right now, and what stocks have a good fundamental reason to run. We can’t buy them all, but as they get into their buy-in areas (if earnings are still over two days away) they could/should make good trades. I’m not loading up the boat until after The Ben Bernanke does his Humphrey Hawkins testimony (in front of Congress) on Wednesday and Thursday.
Congrats to all who got in on the PCYC run – it was a quick 15+% in one week.
My current short-term holds are:
- SRPT – in at 41.08 (currently 44.40) – stop at 42.50,
- FB – in at 25.61 (currently 25.85) – stop at entry,
- AMAT – in at 16.02 (currently 16.55) – stop at entry,
- JNJ – in at 89.00 (currently 89.89) - stop at entry
- SIL – in at 24.51 (currently 12.07) – no stop
- GLD (ETF for Gold) – in at 158.28, (currently 124.05) – no stop ($1,277.80 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 19.24) – no stop ($19.77 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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