This
Week in Barrons – 10-28-2012
“Courage is being scared to death, but saddling up anyway.” ... John Wayne
This
week the US Government posted GDP growth over 2%. GDP is our Gross National Product (the sum of
all the goods and services produced in the U.S.), and this 2% growth EXCEEDED
even the brightest of estimates. With
all of the major businesses telling us that they are dramatically slowing – how
can GDP go up?
-
Over 18 major companies are telling us that the global
economy is dramatically slowing.
-
The stock market darlings are missing their earnings
estimates by a mile.
-
CEO's are telling us that things “stink out loud”.
How
can GDP go up? The reason is that the U.S.
Government juiced the number itself – by purchasing over (33%) 0.7% of the 2%
growth number – ITSELF – with money that it doesn’t have. So in much
the same way as the September jobs report showed a decreased level of unemployment
to 7.8% (courtesy of government employee hiring), this same government is now
juicing its own numbers to make itself look better on the GDP side of the
ledger.
I
suggested back in June that the economic numbers were going to come out much
better than the economy would suggest.
Just imagine the (wink-wink) ‘courage’
that it took to print that 2% GDP number.
There
is a real financial war going on between mutual fund managers too scared to buy
over priced stocks, and banks that are flush with The Ben Bernanke's $80
billion a month burning a hole in their pocket. Will lousy fundamentals ever give way to a really
deep, protracted correction, or will they find the ‘courage’ to give us a year-end rally? In the past, I’ve voted for the year-end
rally.
Unfortunately,
the DOW didn't challenge 13,600 because of rising earnings, wonderful
fundamentals and a growing economy. The
DOW crawled up from the 6,600 lows in 2009 on nothing but money printing
by our Federal Reserve. Yet climb to
13,600 we certainly did. So, the market
has proven that The Ben Bernanke’s Bucks do indeed move markets. But now we have a problem. In order to rise from 6,600 to 13,600 –
companies had to lie, lay-off workers, account for all manners of write-offs,
and even modify generally accepted accounting principles – in order to beat
their publicized earnings “by a penny”. I think we’ve run out of ‘sharp
pencils.’ If this had happened during
any other market time in history – where 18 of the biggest, most amazing,
terrific companies (like IBM, Google, Federal Express, Intel, Caterpillar,
Apple, Microsoft, etc.) all came out and missed earnings and/or warned about
lowering earnings guidance, we would have plunged straight down for 2,500
points instead of the 500 point plunge that we’ve seen thus far.
So
the jury is still out. This collapse could
(and should) indeed be the big one. This
market has been primed and pumped like no one has ever seen – with $80 Billion a
month flowing straight into the banks. Banks
enjoy spending and taking risks with other people’s money, so what are they
going to do with all of this money, it if they don't buy stocks? We have a very important election in front of
us. We have a rabid Federal Reserve
tossing the kitchen sink at things. We
have an over-bloated stock market. And
we have a global recession – all at the same time. So which group(s) will have the ‘courage’ to do the right thing?
The Market:
This
past week wasn't very friendly to stock investors. After trying for the fourth time to break above
a very tough resistance at the 13,600 level, the attempt failed and the market
lost 500 DOW points this week. It should
have. All the monster companies of the
US economy missed already lowered earnings, warned about the future, and should
have received an old-fashioned butt whoopin’.
And
Thursday evening things got even sillier. Apple (the most darling of all companies) missed
their earnings estimates by a mile. And,
to add insult to injury, Amazon then came out and confessed that they too were
not selling as much as everyone had hoped.
So, come Friday morning, I had to laugh when the ‘magic’ GDP number of
over 2% was released, as it’s validity was only rivaled by the 7.8%
unemployment number released weeks earlier.
But
I tend to think that there is also something else at work here. DOW 13,000 isn't horribly important as a
technical indicator, but it's quite a valuable psychological level. If the DOW lost the 13K level, it would paint
a very bad picture for the health of both the market and the economy. I simply didn't think they wanted to lose that
level, no matter what. So we closed out
Friday sitting at 13,107.
I
don’t think that they want to run the market higher just yet, but they don't
want it to cascade downward either. I’m
biding my time until a true trend forms. Right now, I think sitting on your hands is
the right play.
I
have received a few emails asking about going short any time soon. My feeling is if the DOW loses 13K, then it
would be time to do a bit of short selling.
BUT – this market reacts to The Ben Bernanke's printing. If you go short and The Ben Bernanke steps up
his bond buying, we will put in another 200+ point gain in a heartbeat. I'm still in the camp that says at some point
they will ‘light-it-up’ and send this market into a year end rally; therefore,
I’d rather do nothing than get caught short.
I
do believe that a monster correction is coming. It could be starting now, but I think it will
start around May of 2013. I think that because
Wall Street is a very vocal supporter of Mitt Romney, and could very well be
using this time to "do some selling”, so that Obama can't point to a
rising market and try and take credit for it.
If
I’m right, we could see a soggy, droopy sideways market for the next 9
sessions, see a Romney win, and a very powerful sprint higher. However, if the DOW loses 13K, it's not a good
sign. That's a big mile-marker to lose
and could mean that we have more downside ahead.
Tips:
This
week I did not purchase anything – nor did I tweet about any stocks to
watch. There’s an old saying: “Don’t
fight the tape” – and currently this tape is ugly and it’s fighting to maintain
that 13,000 level on the DOW.
I
was stopped out of: TCK, RIG, CLF, BRCM
– all for 50-cent losses.
I’m
still holding silver and gold as a hedge against inflation and our
currency.
As DS wrote us: “With the Fed so
committed to quantitative easing, stocks might escape a crash, but not the
dollar and Treasuries. Black Monday is
more likely to occur in the currency and/or bond markets, with safe-haven flows
moving into gold, not Treasuries.”
My current short-term holds are:
-
SIL – in at 24.51 (currently 24.56) – no stop yet
-
SLW – in at 38.50 (currently 39.34) – no stop yet
-
GLD (ETF for Gold) – in at 158.28, (currently 166.00) – no
stop ($1,710.90 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 31.08) – no stop
($32.01 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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