This
Week in Barrons – 10-7-2012
“Unbelievable jobs numbers… these Chicago guys will do
anything… can't debate so change the numbers”... J. Welch
To
quote last week’s letter: “The Ben Bernanke and Obama should be able to create
the illusion of prosperity”, and darn if they didn’t. I agree with Jack Welch. The Obama administration and the Labor Department managed to fudge data and
statistics enough to get the unemployment rate below the "magic"
number of 8 percent. Why – because no president has been re-elected with
an unemployment rate above 8 percent since the Great Depression. With the rate declared at 7.8%, Barack Obama
has cleared yet another hurdle in his quest for re-election. At this
point, Obama will say that unemployment is lower than when he took office and
will ride this one statistic to re-election.
As soon as the number was released (Friday at 8:30 a.m. ET), The
Associated Press ran an article with the headline: US jobless rate
falls to 7.8 pct., 44-month low. But
four hours earlier, it was a totally different story -- with the AP’s headline was: In wake of debate, Weak Jobs Numbers Expected. The earlier article predicted that
unemployment numbers would tick up slightly, meaning more bad news for Obama.
Let's
understand what has happened here.
- Obama got smoked in the debate.
-
Obama’s economic policy has been viewed as a disaster.
-
The GDP number was revised downward to just slightly over 1%
growth (anemic at best). -
The number of new people signing up for unemployment each week
remained around 370,000.
They
had to do "something" that they could talk about, and they did the
jobs thing. The "U6" reading for jobs remained the same; however, the
number of people working part time for economic reasons soared 582,000. That was the magic – they found 600K people
that were working ‘part time for economic reasons.’ Factually – that number is higher than ‘any
number’ since 1984 – and it occurred exactly 30 days before a presidential
election where President Obama was basically tied for re-election with the
challenger. Jack Welch is right.
Let’s
think a little longer about this. September
(the month that they were reporting on) is when kids go Back-to-School and ‘part time’ / ‘summer jobs’ are lost not gained. But nope – not this year! This year all of the students went out and got
part time jobs instead of going to
school. Oops, there’s a problem here –
the LOAN data for students going
back to College on student loans remained constant. So, somehow 580K kids decided to not only go
to college, but also to get part time jobs.
And to add insult to injury – there just happened to be 600K part time
jobs sitting there (in one month) waiting for the avalanche of these students. Jack Welch is still right.
The truth
is that the real unemployment rate is actually much higher than 7.8% when you factor in the number of people who
have given up looking for work since the President took office. Seventeen million Americans have been driven
out of the workforce by the Obama administration's failed economic policies. If the job participation rate were measured the
same today as when our 44th president was inaugurated, the AP and other media
outlets would have announced an unemployment rate of 10.7%, not 7.8%.
Switching
gears – and thanks to JT, JA and Bill Gross of PIMCO (for the PIMCO monthly
report) – some of it’s findings were:
-
The US has a Federal Debt / GDP ratio less than 100%, an
Aaa/AA+ credit rating, and the benefit of being the world’s reserve currency.
-
Studies by the CBO, IMB and BIS suggest that we need to cut
spending or raise taxes by 11% of GDP rather quickly.
-
Unless this gap is closed, the inevitable result will be that
our debt/GDP ratio will continue to rise, the Fed will print money to pay for
the deficiency, inflation will follow, and the dollar would inevitably decline.
Often
a picture is worth 1,000 words – and the graphic below best describes countries
that are managing their economies (in green) and ones that are not – with the
ones that are NOT located in the “Ring of Fire.”
If elements were left unchanged – and
investment results of this “Ring of Fire” would be that:
-
Bonds would be burned to a crisp,
-
Stocks would be singed,
- Only gold and real assets would thrive within the “Ring of Fire.”
If this were to occur, the U.S. would no longer be in the catbird’s seat
of global finance. For 40 years the
world has depended upon the U.S. economy as the world’s consummate consumer,
and the dollar as the global medium of exchange. If we remain true to our course, then rating
services, dollar reserve holding nations, and bond managers will force a
resolution that will end badly. It would
be a memory that investors would WANT to forget.
The
Market:
Everyone’s
unhappy:
-
Money managers are unhappy because 70% of them are lagging
the S&P 500 and see the end of another quarter approaching.
-
Economists are unhappy because they do not know what to
believe: this month’s forecast of a strong economy, or last month’s forecast of
a weak economy.
-
Technicians are unhappy because the market refuses to
correct, and gets more and more extended.
-
Foreigners are unhappy because due to their under-invested status
in the U.S., they have missed the biggest double play (a big currency move plus
a big stock market move) in decades.
-
The public is unhappy because they just plain missed out on
the party after being scared into cash after the crash.
It
almost seems ungrateful for so many to be unhappy about a market that has done
so well. People would prefer the market
to correct to allow them to buy and feel happy, which is just the reason for a
further rise – because frustrating the majority is the market’s primary goal. I’m reminded of something Mark Twain once
wrote: “October, this is one of the
peculiarly dangerous months to speculate in stocks. The others are July,
January, September, April, November, May, March, June, December, August, and
February."
October
is known as the "crash month". But 97% of the time, October is just another
month. I suggest that unless Israel
launches an attack on Iran, this October will not be a crash month either. With Obama desperate to hold power, he will
not let a crash occur. That doesn't mean
it will not pull down some. It certainly
could. But crash – no – too many eyes
are on it.
That
said, I will admit that I thought that the QE3 last quarter should have
reflected a higher market by now. We
have chopped and hopped sideways for a while, and then on Friday we saw them
try and break us free, but it didn’t hold.
On
September 14th, right after QE3 was announced, the market put in an intra day
high of 13,653. After that high, we did
a lot of running in place, finally fell a bit and then moved back up. The intra day high Friday was 13,661, but it
couldn't hold and we faded off of that high. Now after QE1 they bought the market. After QE2 and the twist, they bought the
market. After QE3, the world will be
staring at corporate earnings (starting Monday) that will NOT be good. So will they continue to buy the market
despite fading earnings, falling revenues and a punk economy? Or, will they say "enough is enough” –
stocks do not deserve their price point and their multiples – and sell the
news? The jury is out.
I
am siding with the idea they continue to buy stocks and drive us over that Sept
14th high for one simple reason. The Ben
Bernanke's $40 billion a month is pushing cash into the banks. They are flush with it. They can sit on it, or use it to play risk
trades – and I think they will use it to make trades. For the past 4 years it's all they've known. Banks won't want bonds paying 1%, if they can
jam stocks higher and get a quick 8%.
The
good news is that we will all know this – THIS WEEK. If companies are missing their earnings, and
the market doesn't fade off much – they’re telling us that they are willing to
continue the ponzi scheme and we're going to make a year end run. If however this market pouts and sells off, then
thinking has changed and we will not know how low this market will fall.
In
the meantime I’m leaning slightly long, and placing some select trades. If this week looks to push the market higher
(despite fading earnings), we will get "longer". If not, we will pick a few select shorts for a
couple weeks.
Tips:
Keep
an eye on the silver market, as I think it’s getting ready to make a move. Take a look at the chart of the SLV and you
will see that the 50-day and the 200-day averages crossed a couple days
back. Whenever the 50-day crosses over
the 200-day (after being below it for months) – that’s a very bullish
sign. The SLV has been threatening to
break above the 34 level – that’s held it back for a while. So on one hand we have the chart pattern, and
on the other we know that The Ben Bernanke’s printing press and the European
printing press are beginning to make some noise. Adding up the chart with the excess printing,
a close over 34.10 on the SLV would be a good area to consider picking some up
if you're so inclined.
I’m
becoming a lot more diligent in using Twitter to dictate my buys and my
stops. This week I purchased some: JNJ
at 69.51, FDX at 86.03, FCX at 40.00, and MMM at 94.01. I also stopped out of LOW this week for a $2
gain and MRO for a $1.50 gain.
I
also agreed with DS and purchased some SIL at 24.51.
My
Current Holds are:
-
JNJ – in at 69.51 (currently 69.62) – stop at 69.29
-
FDX – in at 86.03 (currently 86.91) – stop at 86.15
-
FCX – in at 40.00 (currently 40.45) – stop at entry
-
MMM – in at 94.01 (currently 94.96) – stop at entry
-
SIL – in at 24.51 (currently 24.90) – stop at entry
-
GDX – in at 42.50 (currently 53.65) – stop at 52.80
-
IBM – in at 198.34 (currently 210.53) – stop at 208.00
-
GLD (ETF for Gold) – in at 158.28, (currently 172.61) – no
stop ($1,778.60 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 33.35) – no stop
($34.51 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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