This Week in Barrons – 10-13-2013
“This is going to hurt me, a lot more than it hurts you” … NOT!
I continue to be mildly amused at the absolute disaster that is indeed the launch of the Obamacare website. I naturally assume that when you’re solving a problem – that you tell me exists for millions of people – you will be ready to serve ‘millions of people’ when they come knocking at your website’s door. I guess ‘Preventative Medicine’ (to the U.S. Government) means ‘Preventing’ as many people as possible from accessing the ‘Medicine.’
You've all heard the horror stories of people trying for hours and hours only to see a message that says: ‘Please Wait’ or ‘Site Temporarily Down’. In virtually any private sector situation, this would be a failure of colossal scope, but according to the President himself, it is a smashing success. The goverment’s rationale was that so many people were looking forward to Obamacare – demand was so much greater than anticipated – that the website was swamped. Mr. President – please remember - we are all ‘forced’ (by penalty of the IRS) to purchase insurance. Secondly, because we're being ‘forced’ to purchase insurance, people are naturally curious to see what they are being offered. I cannot believe that this ‘boondoggle’ has been 3 years in the making. We created the largest example of socialism our Country has ever seen – and it doesn’t last an hour before it crashes. If our government can't run a website, how are they going to link all this to the IRS and set standards based on our incomes?
From the small sampling of people that have written me, it doesn't look good for the middle aged, reasonably healthy person that may have an existing health insurance policy. From what people are telling me, the premiums are significantly higher under Obamacare. For those with an existing condition, or the abject poor, it's great. So like the perfect socialist program, it is taking money from people that are in good shape (and already paying a relatively decent premium), and giving it to the un-insured, the under-insured, and the people that have had a bad situation in their lives. Personally, I just spent 90 minutes trying to complete my personal and family profile on www.healthcare.gov - basically getting thru names, addresses, DOB and social security numbers – only to have the site crash. So I was prepared to give you numbers first hand – but alas – Obamacare can’t give me a price. But don’t give up hope – as I’m now one of those that is going on 24 hours with a ‘Please Wait – do not close this window’ showing on my computer. But hey, it potentially needs more time to calculate my particular insurance situation!
Whenever our government frustrates me (such as this), I’m reminded of a writing by Rabbi Pruzansky that he penned on November 7, 2012 concerning the election. While I'm not Jewish, and don't know this man, I’ve enjoyed his writings considering 70% of the Jewish community voted for Obama.
“The most charitable way of explaining the election results of 2012 is that Americans voted for the status quo - for the incumbent President and for a divided Congress. They must enjoy gridlock, partisanship, incompetence, economic stagnation and avoidance of responsibility. And fewer people voted. Romney did not lose because of the effects of Hurricane Sandy that devastated this area, nor did he lose because he ran a poor campaign, nor did he lose because the Republicans could have chosen better candidates, nor did he lose because Obama benefited from a slight uptick in the economy due to the business cycle. Romney lost because he didn't get enough votes to win. Romney lost because the conservative virtues - the traditional American virtues - of liberty, hard work, free enterprise, private initiative and aspirations to moral greatness - no longer inspire or animate a majority of the electorate.
The simplest reason why Romney lost was because it is impossible to compete against free stuff. Every businessman knows this; that is why the "loss leader" or the giveaway is such a powerful marketing tool. Obama's America is one in which free stuff is given away: the adults among the 47,000,000 on food stamps clearly recognized for whom they should vote, and so they did, by the tens of millions; those who - courtesy of Obama - receive two full years of unemployment benefits (which, of course, both disincentivizes looking for work and also motivates people to work off the books while collecting their windfall) surely know for whom to vote; so too those who anticipate "free" health care, who expect the government to pay their mortgages, who look for the government to give them jobs. The lure of free stuff is irresistible.
The defining moment of the whole campaign was the revelation (by the amoral Obama team) of the secretly-recorded video in which Romney acknowledged the difficulty of winning an election in which ‘47% of the people’ start off against him because they pay no taxes and just receive money – ‘free stuff’ - from the government. Almost half of the population has no skin in the game - they don't care about high taxes, promoting business, or creating jobs, nor do they care that the money for their free stuff is being borrowed from their children and from the Chinese. They just want the free stuff that comes their way at someone else's expense. In the end, that 47% leaves very little margin for error for any Republican, and does not bode well for the future.
That suggests the second reason why Romney lost: the inescapable conclusion that, as Winston Churchill stated so tartly, ‘the best argument against democracy is a five-minute conversation with the average voter.’ Voters - a clear majority - are easily swayed by emotion and raw populism. Said another way, too many people vote with their hearts and not their heads. That is why Obama did not have to produce a second term agenda, or even defend his first-term record. During his 1956 presidential campaign, a woman called out to Adlai Stevenson: ‘Senator, you have the vote of every thinking person!’ Stevenson called back: ‘That's not enough, madam, we need a majority!’ Truer words were never spoken.
The takers outnumber the givers, and that will only increase in years to come. The ‘Occupy’ riots across this country in the last two years were mere dress rehearsals for what lies ahead - years of unrest sparked by the increasing discontent of the unsuccessful who want to seize the fruits and the bounty of the successful, and do not appreciate the slow pace of redistribution. If this election proves one thing, it is that the Old America is gone. And, sad for the world, it is not coming back.”
Coming into Wednesday of this week, the DOW had fallen 900 points in just a couple weeks. A couple reasons for that were:
- We had to unwind all the bets placed on The Ben Bernanke’s tapering (and then he didn’t) – so we had a bit of buy the rumor, sell the news,
- Then we headed right into the Government shut down,
- And now (of course) we are approaching the debt ceiling.
But all of this week’s action doesn’t change our overall feeling of the market. Despite wiping out some big support levels, and despite the massive profit taking we saw in the former leadership stocks, we feel this is temporary. After all, we have seen this movie before:
- On May 1st, 2013 the DOW was at 15,500, and six weeks later it had fallen to 14,580.
- Then it rocketed back up and by Aug 1, we were at 15,650, but then everyone got nervous over the taper, and just a month later – we were back down to 14,760 again.
- Then we ran up in September and hit 15,750 for an all time high, and we’ve come back down in the last couple weeks to 14,780. There have been 5 months of 1,000-point swings both up and down.
My point is that on this particular pull down, when we get the news that they've struck a deal, upped the debt level and are holding hands again in Washington – I suspect that we will run back up into year-end and potentially exceed the all time highs. Granted, a lot of things have changed lately, and ‘yes’ earnings are beginning to stink – as the economy has clearly slowed down. There could be a possibility that they don't take us back up to the all-time highs, but with Janet Yellen being potentially appointed as the new Fed chief, I think she will be welcomed in with a roar into the year-end.
As you know, I was the one saying that The Ben Bernanke would NOT taper. And I'm the one saying that the next move out of the FED will be more QE, not less. Yes, you’ve read that correctly – not only will there be NO taper, Ms. Yellen is going to increase the amount of the stimulus. Just this week Ms. Yellen mentioned that "more has to be done to strengthen the economy". That’s does not sound like a ‘tapering’ remark to me.
Now I'd love to tell you that all you have to do is jump into the market and take this ride. But, even though that sounds like the right choice, you may wish to be cautious for just a bit longer. Why? Well, the bulk of the first day’s move was short covering. Those that shorted the market on the idea of a log-jam, had to cover when word started spreading that a deal was getting close – hence the large 300+ point pop.
History shows us that after a couple big ‘V’ reversal up-days, the market often fades back and tests the break out level again. If the break out level holds, the market then goes on a real run. So with that in mind, as much as we want to participate, we do need to be aware of the fact that this particular jump could indeed be ‘too much too quick’.
On another note, we did have yet another attack on gold and silver this past week. While this letter is already too long to include much about that, I will devote next week’s letter to just what is going on behind the scenes. Even truly knowledgeable market people such as Art Cashin are beginning to question if there's some form of ‘conspiracy’ going on.
For this week, don't be surprised if we fade off a bit, even if a deal is struck, as (for the most part) it has been priced in. And (as ‘nuts’ as it sounds) we’re probably going to see all new highs, while the actual economy slumps deeper into this depression. But before we get there, we're going to have to endure these bumps and lumps. We could still go lower here, as the support levels (for the most part) have been taken out. But after this correction, I still think we will power back up into year-end.
Thanks to Steve Forbes for bringing my attention to the following excerpt spoken by the Chinese Premier Li Keqiang last Thursday. The Premier told U.S. Secretary of State John Kerry: “To China, the issue of the American debt ceiling [is of] great attention”. The Premier went on to say that American powers are by no means as free to act irresponsibly and independently as before. The Chinese (in fact) hold U.S. assets amounting to about $2 trillion. The Chinese Vice Finance Minister Zhu Guangyao asked the Americans to “ensure the safety of Chinese investments. In the event that the U.S. debt limit may not increase, the Americans would FIRST have to service their debt obligations to the holders of existing government bonds. The U.S. is in a debt vortex, and might as well be run by a bunch of monkeys. Nobody in their right mind would run a country as they are today in all of Western society. Why does the U.S. borrow and pay interest, when they have ZERO intention of ever repaying the principal?”
The words and actions of both Chinese Premier Li Keqiang and Vice Finance Minister Zhu Guangyao clearly illustrate that the US (in their minds) has lost its independent sovereignty when it has to rely upon foreign adversaries for its survival. For example: How can the U.S. even think of invading Syria – when both Russia and China (to whom we owe over $2.5 Trillion in U.S. assets) oppose the idea?
Remember (a while back) when I spoke of the U.S. government seizing U.S. pensions. Well, that idea is again gaining momentum. One particular scenario counts on insurance companies not being able to produce guaranteed returns, and potentially defaulting on their obligations to their annuity holders. The Feds will then step in, secure and pay the annuities; however, the accounts will no longer belong to the insurance companies – but rather Uncle Sam. These assets will then be used to redeem the bonds that China, Japan and Russia hold. This will solve the problem of foreign debt holders, and US independence shall be restored – (naturally) at the expense of all of those pension holders.
This week’s tip on selling out of the money calls is surrounding AMD. AMD is currently selling for $3.83 – and the $4 covered calls are selling for around 10 cents – producing a weekly ‘call gain’ of over 2.5% (over 100% annually). If you own some AMD – you could sell the $4 weekly call option (expiring on Friday, Oct 18) – and collect the $0.10 per share. If the option expires worthless – that’s over a 100% annual return, and if you’re ‘called out’ the return is even greater. “Rinse ‘n Repeat” with many of the weekly options stocks – some with more promising futures than AMD such as: PRLB, SSYS, and DDD.
I did ‘finally’ get stopped out of Facebook this week – but not before a 100% gain. I also bought some CIEN this week along with WNR, and LRCX.
There are several stocks that still look like they'll make a nice move once this mess is behind us: SanDisk (SNDK) over 63.45, Texas Instruments (TXN) over 41.10, and Starbucks (SBUX) over 77.50 – to name a few. Some others that I'm looking at are for entry points are: DDD, AKAM, WWW, and BYD.
My current short-term holds are:
- CIEN – in at 26.00 (currently 26.34) – stop at entry,
- LRCX – in at 52.49 (currently 52.70) – stop at entry,
- WNR – in at 31.51 (currently 31.84) – stop at entry
- SIL – in at 24.51 (currently 12.14) – no stop
- GLD (ETF for Gold) – in at 158.28, (currently 122.69) – no stop ($1,268 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 20.53) – no stop ($21.21 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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