This
Week in Barrons – 10-14-2012
QE3: “to Infinity and Beyond…”... Buzz Lightyear – Toy
Story (the movie)
I
my view we should have gotten a 5% market ‘pull-back’ when The Ben Bernanke
announced QE3; therefore, the current pullback isn't surprising. But it is still surprising to me to have us
trade virtually sideways and down for over 20 sessions. I still believe that there's a year-end romp
waiting in the wings. I’m not sure of
the catalyst for it just yet, but at some point we're going to see them put The
Ben Bernanke's money to work and drive this market higher. It could happen on a Romney win, since Wall
Street is backing his campaign. All in
all, I think there's one last run higher left in this market, and then sometime
in 2013, we're going to see the market roll over and it will fall a lot
further than most people can imagine.
I
tend to think that when we go short next year, we're going to have another
record return year. Currently you can’t short
this market because at any time we could touch the 50-day moving averages on
the S&P and DOW and instantly bounce for 400 points. You need to wait on the big picture trend
change.
Factually:
- Consumer
credit outstanding is at an all-time high of $2.73 trillion – as the Federal
government has dished out billions in student loans.
- Total credit market debt ($55 Trillion)
now exceeds 350% of GDP.
-
The National Debt of $16.2
trillion will exceed $20 trillion in 2015 no matter who wins the Presidency in
November.
-
40% of our citizens are obese, and
diseases like diabetes are growing exponentially.
-
This week 4 major companies sent
out letters to their employees that if Obama-care were implemented, they would have
to do everything from laying people off, to changing their entire work force to
part-time status.
-
CNBC reported that 4% of all
trading in the U.S. stock market last week was executed by one algorithm that
placed an order once every 25 milliseconds and then canceled that same order. It was a specific firm’s way of baiting buyers
interested in purchasing a specific stock (showing them extremely high volume),
and thereby forcing purchasers or sellers to reveal their positions prior to executing
a trade.
-
In one Texas school district, children
wear RFID devices so the school can track their every move.
-
The UN is pushing for the
implementation of the first "global tax".
I
received many questions this week from readers – and here are three:
“Is
now a good time to buy a house?” Housing
is a key economic issue as it has lagged the recovery badly until this year. What I see is that most of the pickup in
demand is not coming from real home buyers, but speculators, hedge funds and
Freddie Mac / Fannie Mae getting into the rental business or buying the
speculation. Hence I don’t see a
sustainable housing recovery – and see foreclosures picking up in Q2 thru Q4 of
2013 along with an already massive backlog of foreclosures.
“Will
there be a Santa Claus Rally?” Stock
trends around the world all point toward a major stock bubble bursting just
ahead. There is very strong upper
resistance on our S&P at 1,580 to 1,600 and on the other world markets as
well. That means that even our best
estimates give an 8% gain remaining for stocks until the end of the year. I think stocks will peak over the next 6
weeks and (like 2008) leave Gold and Silver to diverge and continue their own
rally into 2013.
“Can
we fix the U.S.?” Yes we can – but it’s not going to
happen. The single most important reason
that we were able to become the most powerful middle class on earth – leading
to our expansion and manufacturing was CHEAP ENERGY. Cheap energy allowed people to purchase their
dream homes 40 to 50 miles from where they worked. They could afford the 35-cent a gallon
gasoline that allowed them to work in the city, but live in the country. Housing was the ticket to a strong middle
class. The fact is that when a developer
puts up 1,000 houses, tens of thousands of craftsman have a job. Demand
for goods rises. Factories expand to
meet the demand. But, without cheap
energy, it all stops. So why don’t we
have an energy policy out of Washington?
For 40 years I've been promised (by every single Presidential candidate)
that we'd have a safe and secure energy policy that kept our energy cheap and
our nation safe. In the past ten years,
via the improvements in fracking, oil discoveries off Alaska, and deposits in
Canada, the amount of energy the US can produce is staggering. Yet it's opposed every day by our own
government.
-
Obama pledged billions to drill offshore – where – Brazil.
-
Remember when Obama looked at the camera and said point
blank: “Oh you can open a coal company, but you're going to go
broke."
-
Obama turned down the pipeline project.
-
Obama’s tried his best to halt offshore exploration and
drilling. He comes on TV and says:
"Exploration and drilling have expanded on my watch." But what he doesn't tell you that it’s all on
PRIVATE lands. On the U.S. owned lands,
exploration and drilling are all but nonexistent.
Thus,
we have no choice but to prepare for a pretty tough stretch of road ahead. We need to understand that this path is
unsustainable, and will end badly. But
hey, maybe that's the very medicine we need. Once we all see the big depression hit, maybe
then, we can finally do the things we need to rebuild correctly. But between now and then, I’ll continue to
hunker down.
The
Market:
When
Bernanke announced QE to infinity, my reaction was that the market should have
"sold the news" and done a 5 to 8% pull back – back to around 13,000
on the DOW. But instead it didn't, and slopped
and chopped sideways for 20+ trading sessions – between 13,300 and 13,600. Inside that range, everyone has played the
sector rotation game, bidding up materials one day, tech the next, pharma the
next – but basically running in place. This all could be described as ‘base
building’, but I was disturbed that we didn't have that initial correction.
After
trying to break the DOW above 13,600 and failing the previous week, we are now
experiencing full tilt selling. We are just
about 10 points above the 50-day moving average on the DOW. On the S&P the scenario is worse, we're a
couple points below the 50-day moving average. If we put in a close or two under that 50-day
moving average, we could be looking at 13,000 in a very short period of time. There's not a lot of support at 13,300 and under
that things get ugly.
Could
this be the pullback we expected on the The Ben Bernanke announcement that's
finally come home to roost? It very well
could be folks, but allow me to apply a slightly different spin to this. Back in 2008, Wall Street was all about
Obama. The Wall Street campaign
donations were enormously skewed to the Obama coffers, and Obama won. This time, Wall Street's hundreds of millions
is going to the Romney camp. In fact the
ratio is higher than 10 to 1 for Romney.
Is
it possible they kept us up all those days just chopping around so they could
then let a correction hit – just so that Obama can't point to the market, and
tell the lie that his policies have pushed the market to new highs validating
that he's on the right track? With
algorithmic trading robots, high frequency trading, etc. there’s virtually
nothing that bankers can't pull off when it comes to the market. In fact a Swiss entity just put out a study that
found a mere 147 corporations have control of 40% of the world's wealth; which
is the real economy. Of those 147
corporations, the big hitters are the banks, and they cite: Goldman, JPM, UBS, etc.
If you are that powerful globally, it
wouldn’t take all that much to pull off a little market sell off which would
benefit Romney.
I
know that might sound silly, but the market is doing what it always does –
dissuading the most amount of people it can – before it "takes off". Don't forget that many fund managers (and
individual investors) thought that when QE3 was announced we'd soar to new
highs. Well, the market is rarely that
accommodating. The market senses if too
many are long, it goes down, and when too many are out (or short the market) it
goes up. That's its job, to separate as
many from their money as it can. So, as
more and more folks get depressed that QE 3 hasn't worked and are pulling out
or going short, the market will punish them with a long side run. But it will do it when it wants, not when I
want.
In
terms of gold and silver, the numbers tell the story: Silver is up over 18% in
2012 and up at least 27.5% since mid-June, only four short months ago. Silver Wheaton’s (SLW) CEO Randy Smallwood (and
other experts) believe silver will soar to $40 an ounce within six months, and
end 2013 with 47% gains, putting silver at $50.
There is a definite ‘silver lining’ in the Fed’s "QE to
Infinity" remark. And if some analysts'
predictions come true (that we do experience QE4 next year), silver could go
even higher. It really all comes down to
how many U.S. dollars are being printed to carry, restart, or build on the economy
here in the United States. We may not be
able to stop the Fed from aligning with the government to support a wasteful
bureaucracy at the expense of taxpayers like you and me, but we can make money
on it via Gold and Silver.
Tips:
Consider
this, with Romney doing so well in the polls and telling voters in West
Virginia that if he's elected he's going to help the Coal industry – the coal stocks
are moving upward. I like BTU over $26.25
per share.
Also
consider HPQ. Hewlett Packard / Compaq
is NOT a trade. I’m thinking about holding
this for a few months. HPQ is still a major
player, and their 3D printing could be the fundamental catalyst that allows
them to exit the tunnel that they’re currently in. I may be willing to hold it for a while and
see if the value guys start to sniff around.
This
week (on twitter and for real) I purchased some: SLV, SIL and SLW. I also stopped out of: JNJ – $0, MMM – $0, FCX – $0.25 cent gain, GDX
for a $10 gain, and IBM for $10 gain. It
was a good week!
My
Current Holds are:
-
FDX – in at 86.03 (currently 90.38) – stop at 88.15
-
SIL – in at 24.51 (currently 24.37) – no stop just yet
-
SLW – in at 38.50 (currently 39.10) – no stop just yet
-
GLD (ETF for Gold) – in at 158.28, (currently 169.91) – no
stop ($1,768.80 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 32.37) – no stop
($34.05 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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