This Week in Barrons – 12-1-2013
A Nice Couple of Thanksgiving Stories:
Because Thanksgiving is my most favorite holiday, I would rather not dwell on the #WalMartFights, or any other goings on that turned caring individuals into ferocious zombies – fighting, punching, and tasering each other over junk they don’t need and often with money they don’t have. (Yes, in one instance a fight over an electronic device caused one woman to use a Taser on another.) I would rather talk about 2 thoughts – submitted by SF – that should leave a smile on your face.
Many years ago, Al Capone virtually owned Chicago. Capone wasn't famous for anything heroic, but was notorious for immersing the windy city in everything from bootlegged booze and prostitution to murder. Capone had a lawyer nicknamed "Easy Eddie." He was Capone's lawyer for a good reason - Eddie was very good. In fact, Eddie's skill at legal maneuvering kept Al Capone out of jail for a long time. To show his appreciation, Capone paid him well. Not only was the money large, but Eddie received special dividends, as well. For instance, he and his family occupied a fenced-in mansion with live-in help. The estate was so large that it filled an entire Chicago City block. Eddie lived the high life of the Chicago mob, and gave little consideration to the atrocities that went on around him. Eddie did have one soft spot, and it was for his son that he loved dearly. Eddie saw to it that his young son had clothes, cars, and a good education. Price was no object. And, despite his involvement with organized crime, Eddie tried to teach him right from wrong. Eddie wanted his son to be a better man than he was. Yet, with all his wealth and influence, there were two things he couldn't give his son; he couldn't pass on a good name or a good example. One day, Easy Eddie reached a difficult decision. He wanted to rectify wrongs he had done. He decided he would go to the authorities and tell the truth about Al "Scarface" Capone, clean up his tarnished name, and offer his son some semblance of integrity. To do this, he would have to testify against The Mob, and he knew that the cost would be great. But he went ahead and testified. Within the year, Easy Eddie's life ended in a blaze of gunfire on a lonely Chicago Street. But in his eyes, he had given his son the greatest gift he had to offer, at the greatest price he could ever pay. Police removed from his pockets a rosary, a crucifix, a religious medallion, and a poem clipped from a magazine. The poem read: "The clock of life is wound but once, and no man has the power to tell just when the hands will stop, at late or early hour. Now is the only time you own. Live, love, toil with a will. Place no faith in time. For the clock may soon be still."
Changing gears a little bit. World War II produced many heroes. One such man was Lieutenant Commander Butch O'Hare. He was a fighter pilot assigned to the aircraft carrier Lexington in the South Pacific. One day his entire squadron was sent on a mission. After he was airborne, he looked at his fuel gauge and realized that someone had forgotten to top off his fuel tank. He would not have enough fuel to complete his mission and get back to his ship. His flight leader told him to return to the carrier. Reluctantly, he dropped out of formation and headed back to the fleet. As he was returning to the mother ship, he saw something that turned his blood cold; a squadron of Japanese aircraft was speeding its way toward the American fleet. The American fighters were gone on a mission, and the fleet was all but defenseless. He couldn't reach his squadron and bring them back in time to save the fleet. Nor could he warn the fleet of the approaching danger. There was only one thing to do. He must somehow divert the Japanese aircraft from the fleet. Laying aside all thoughts of personal safety, he dove into the formation of Japanese planes. Wing-mounted 50 caliber guns blazed as he charged in, attacking one surprised enemy plane and then another. Butch wove in and out of the now broken formation and fired at as many planes as possible until all his ammunition was spent. Undaunted, he continued the assault. He dove at the planes, trying to clip a wing or tail in hopes of damaging as many enemy planes as possible, rendering them unfit to fly. Finally, the exasperated Japanese squadron took off in another direction. Deeply relieved, Butch O'Hare and his tattered fighter limped back to the carrier. Upon arrival, he reported in and related the events surrounding his return. The film from the gun-camera mounted on his plane told the tale. It showed the extent of Butch's daring attempt to protect his fleet. He had, in fact, destroyed five enemy aircraft. This took place on February 20, 1942, and for that action Butch became the Navy's first Ace of W.W.II, and the first Naval Aviator to win the Medal of Honor. A year later Butch was killed in aerial combat at the age of 29. His hometown would not allow the memory of this WW II hero to fade, and today, O'Hare Airport in Chicago is named in tribute to the courage of this great man. So, the next time you find yourself at O'Hare International, give some thought to visiting Butch's memorial displaying his statue and his Medal of Honor. It's located between Terminals 1 and 2.
So what do these two stories have to do with each other? Butch O'Hare was "Easy Eddie's" son. Happy Thanksgiving.
The broken record plays on and on. Once again for what seems like the 50th time, the market is sending signals that it is exhausted and wants to take a nap. The signals tell us that it would like to correct some of the insanity that has pushed it to daily, all -time highs. But we've seen the market set up to correct in the past, only to be jammed higher as desperate people push freshly printed fiat money into the system, eeking out returns. Will they do that again, or are we going to see a quick drop of a few percent? Recent history shows us that the market will ignore all the technical signs, and just shovel ‘new month’ money into the market and move it ever higher.
This week brings in the month of December, and will indeed usher in ‘new month’ money as pensions and insurance companies invest some of the monetary inflow they have received for the month. It is likely that the inflow will keep the market (at minimum) flat and potentially up if the inflows are large. But I am a tad concerned later in the week. At some point, fund managers are going to want to ‘lock in’ some of their gains, and you can only do that by liquidating positions. The second week of December is often when this happens, and then we often jump back up and the market runs to yearend. I am looking for that to happen again this year.
However, there are quite a few things out there that could send a ripple through the global markets.
- The Middle East is turning ugly as Saudi Arabia and Israel appear ready to make a strike on Iran's nuclear ambitions.
- In Asia, China and Japan are rattling swords at each other, as China established "No Fly Zones" overtop their two disputed island countries.
- And North Korea has restarted a nuclear facility.
So there's no shortage of things to be concerned about.
Thanks to DS for the following thoughts surrounding the latest Fed minutes. The minutes show that the Fed expects inflation to be tame for years to come. That means that they are unlikely to raise rates or unwind QE anytime soon. Moreover, the Fed may actually add measures that expand QE to address falling prices and demand if there is another economic shockwave. The takeaway:
- The Fed does not expect inflation to be anywhere near the 2.5% level that would trigger a rate hike through 2016, and
- Any external shock – the meltdown of a country in Europe or terrorist attack in the developed world – would certainly draw more and varied QE with interest rates at zero.
This gives our stock market a natural ‘upward and onward’ bias, and the bond futures a reason to continue to rally.
I have been leaning long into this yearend push, taking some profits along the way. I think if more gains are coming, we should find them in technology, and in some retail stocks. I'm thinking Starbucks (SBUX) may have some room to run, as do some of the technology companies behind the gadgets and games. The key is the XLF, which is the financial Exchange Traded Fund (ETF). The market cannot get far without the criminal bankers, so if the XLF starts to fade, a market pullback will indeed happen.
The market should have a natural upward bias for the week – especially with Friday’s retail sales exceeding expectations. I couple things I’m looking to get involved with this week:
- FXY – buying March, $97 PUTS for between $3.30 and $2.65. The Japanese currency is being ‘destroyed’ and I’m looking for it to bottom around $88.
- For a speculative play look at ONTY. It got over the $2/share price last week, and could ‘technically’ run as far as $5 – but it’s not for the ‘weak of heart’.
- Buy-the-dips on the 3D printers. They corrected and sorted wheat from chaff with DDD and SSYS coming out on top. My advice is buy-the-dip – especially DDD – covering it with a weekly covered call.
- Look at RiteAid (RAD) in the healthcare space. (FYI – I still like GILD and INCY.) RAD broke out last week – and at $5.96 – buying shares and selling the $6 calls could net you 4% for the week.
- ACI at $4.08 is attractive – and covering it with the $4 calls gives you over 5% for the month.
- NPSP at $26.41 is on a tear. Look at NPSP under $35 or buy the February calls.
- Twitter (TWRT) at $41.57 – but ONLY for the $41 or $41.50 ‘covered calls’ – yielding 2% for the week.
- Finally – GDXJ has ‘literally’ been left for dead. It’s the Junior Gold Miners that has fallen 41% in 2013 – after falling 43% in 2012. When gold wakes up (and it will) these Junior Miners will rocket higher in epic fashion. Remember the goal here is to ‘buy low’ and ‘sell high’.
My current short-term holds are:
- TSO in at 50.56 (currently 58.63) – stop at 57,
- JNJ – in at 94.50 (currently 95.24) – SOLD @ $95 - $0.50 gain,
- CCJ – in at 20.50 (currently 20.48) – stop at 19.80,
- OC – in at 38.44 (currently 39.31) – stop at entry,
- AXP – in at 84.14 (currently 86.41) – stop at entry,
- SIL – in at 24.51 (currently 11.65) – no stop,
- GLD (ETF for Gold) – in at 158.28, (currently 120.93) – no stop ($1,237.80 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 19.29) – no stop ($19.43 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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