This Week in Barrons – 11-11-2012
“Opportunity is missed by most people because opportunity
is dressed in overalls and looks like work.” … Thomas Edison
It’s the morning after the election, and we need to get
back to work fixing our country. Obama
has been re-elected, and the market rewarded him by falling about 450 points in
3 days. Previously I suggested that the
market may ‘pout’ if Obama won, and I'd call 450 points a pretty big tantrum. Small businessmen are blogging that they’re going
to be shutting down due to the regulations and taxes. Financially – SK writes that: “Several
sectors such as defense, energy and financials may well encounter headwinds
during Obama’s second term.” My
thinking is that traditional energy companies may suffer from both increased and
enforcement of EPA regulations. The
financial sector will also face increased regulatory implementation and
oversight, especially with Elizabeth Warren being elected to the Senate. Also think thru your municipal bond
investments because the value of municipal bonds is partly determined by the
value of their tax exemption. An
increase in tax rates could increase the value of these bonds, while a limit on
tax exemptions could reduce the value.
Mathematically we cannot tax our way out of our country’s
fiscal dilemma. Nor can we
‘mathematically’ cut spending (in a short enough timeframe) that will make a
difference. A true global reset like
Bretton Woods (where 170 World leaders gathered and hammered out the new global
reserve currency and re-priced all currencies) could be the last shoe to fall. We (as a country):
-
Still have $700 Trillion in derivatives to
contend with.
-
Still have $90+ Trillion in National debt and
unfunded liabilities.
-
Still have over 43M people on food stamps,
and over 80+ social programs to support.
-
Still take in less in taxes than we pay out.
-
And we need to make sure that we hold
steadfast the concept of: Hard Work + Personal Responsibility = Success and
Wealth Creation!
We all need to get to work planning for:
-
Small businesses going out of business due to
increased taxes and healthcare costs,
-
Much higher inflation,
-
The ultimate demise of the European Union (with
Spain leading it’s downfall and Greece being the prime example), and
-
Plan for a major market crash – while the
timing is suspect it is inevitable.
We’ve chosen the path of printing more money – that leads
to hyperinflation – that always ends with a crash; rather than clearing out the
dead wood, letting the bankrupt banks fail, raising interest rates, stabilizing
savings, and relying on our innovation, our small businesses, our entrepreneurs
to dig us out of this mess.
With the 450-point drop – this ‘wild ride’ has already
started.
The Market:
Obama won the election. The market greeted him with a 450-point
plunge. Welcome back Kotter. Why the big selloff? One reason I’m hearing is that most of the
people running the EU are Goldman Sachs alumni – and they were told to keep the
EU stable until after the election. Don't
you find it interesting that we didn't hear a thing about Europe going down the
toilet for two months, and the VERY DAY Obama wins, Greece goes up in flames
with riots over austerity?
And now we have the "Fiscal Cliff" to contend
with. What is the “Fiscal Cliff”? The “Fiscal Cliff” is the penalty for a bi-partisan
committee’s (along with President Obama) not reaching agreement on a financial
direction for our nation. A series of
consequences (laws) will go into effect at midnight on December 31st,
2012 that:
-
End last year's temporary payroll tax cuts
(resulting in a 2% tax increase for workers),
-
End certain tax breaks for businesses,
-
Shift the Alternative Minimum Tax resulting
in a larger individual and corporate tax bite,
-
End the ‘Bush Era’ tax cuts,
-
Begin the “Obama Care” taxes, and
-
Begin all the spending cuts agreed upon, as
part of the debt ceiling deal of 2011 (such as a 10% decrease in defense
spending).
By going over the “Fiscal Cliff”, the CBO tells us that
the combination of higher taxes and spending cuts would:
-
Reduce the deficit by an estimated $560
billion,
-
Cut our 2013 GDP by 4% sending the economy
into a massive recession and/or depression,
-
Increase unemployment by over 1%,
-
Be responsible for a loss of approximately 2 Million
jobs.
According to J.P. Morgan economist Michael Feroli,
$280 Billion would be pulled out of the economy by the sun-setting of the Bush
tax cuts, $125 Billion from the expiration of the Obama payroll-tax holiday,
$40 Billion from the expiration of emergency unemployment benefits, and $98 Billion
from Budget Control Act spending cuts. In total, the tax increases and spending cuts
make up about 3.5% of GDP, with the Bush tax cuts making up about half of that.
Our economy is in no position to weather that kind of storm. So in one day we changed focus from who’s
going to win, to “Oh no - Europe's going down the toilet". In one day we went from standing in voting
lines, to "Oh no – in less than 2 months, our GDP will go horribly
negative".
Now the question is, can they get their act together and
make a year end market run? They could,
but the real question is why? The
economy isn't going to magically heal itself because Obama's still in office. Corporate sales are not mystically going to increase. The only way the market could make a move higher
is if Obama calls The Ben Bernanke and says: "Print up A LOT MORE DOLLARS and
pass it around the stock market so it rises and people love me".
The issue is that technically the DOW has lost it's 50
AND it's 200-day moving averages. The S&P lost it's 50, but is still
clinging to it’s 200-day moving average at 1380. That is the line of demarcation. If the S&P loses that 200-day average,
then I'm going to go (in a big way) to cash; however if we hold that 200-day,
they might use that as something of a support and build sideways and upward from
there. Again, even though the DOW is the
most watched and reported index on earth, it's the S&P that all the fundies
use as a benchmark. If the S&P
doesn't hold, this could turn (very quickly) into a really interesting pull
back. Don't get brave and try and buy
the dip, not yet. If it's going to hold,
we'll know soon enough.
Factually, the internals are a mess, and there's an awful
lot of "stuff" being sold – more than the averages suggest. The world looks fairly worried about
"something", and I don’t blame them.
Things couldn't stink much more, and if someone tries to tell you that
the millions of folks on the NJ/NY coast are going to be out spending for iPhones
and Christmas tech gear – well – don’t bet on it. Hurricane Sandy money will be spent, just not
on the ‘usual’ Holiday items.
In
2011 over $100B dollars came out of mutual funds, and in 2012 over $78B more
was pulled out of the market. Some of
this is going to bonds, some to gold, but a big percentage of this is going to
pay the monthly bills. Don’t forget that
when a postal worker is laid off – they get 2 years of unemployment. When the small business guy is laid off – all
he has is his 401k. So, I expect the huge
outflows to continue, only to be countered by The Ben Bernanke giving banks
billions to try and support the market. While
a "bounce" is certain, what isn't certain is if the bounce will hold
and whether they will work us higher into year- end? There was a lot of damage done on Wednesday
and Thursday. Friday didn't do much to
undue that damage.
Until things quiet down, sitting on your hands isn't a bad
play, and we’ll make our trades when we see a trend develop.
Tips:
I continued to be somewhat of a “deer in headlights” this
week – not wanting to catch the proverbial “falling knife” – but not wanting to
‘go short’ for fear of The Ben Bernanke.
This coming week – if the S&P fails its 200-day moving average
(1380) – I will continue to move to cash in order to ride out this storm.
For
those of you unaccustomed to trading ‘options’ – you may want to consider the
‘inverse’ ETF’s offered by ProShares …
-
Short the DOW 30 –
ticker symbol = DOG
-
Ultra Short the
DOW 30 = SDOW
-
Short the ‘Financials’
– ticker symbol = SEF
-
Ultra Short the Financials
= FINZ
-
Short the Nasdaq =
PSQ
-
Ultra Short the
Nasdaq = SQQQ
-
And if you LOVE
SILVER = Ultra Silver = AGQ
My current short-term holds are:
-
SIL – in at 24.51 (currently 23.88) – no stop
yet
-
SLW – in at 38.50 (currently 40.51) – stop at
entry
-
GLD (ETF for Gold) – in at 158.28, (currently
167.76) – no stop ($1,730.30 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 31.57)
– no stop ($32.59 per physical ounce).
To follow me on Twitter and get my daily thoughts and trades
– my handle is: taylorpamm.
Please be safe out there!
Disclaimer:
Expressed thoughts proffered within the
BARRONS REPORT, a Private and free weekly economic newsletter, are those of
noted entrepreneur, professor and author, RF Culbertson, contributing sources
and those he interviews. You can learn
more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>
.
Please write to <rfc@getabby.com>
to inform me of any reproductions, including when and where copy will be
reproduced. You may use in complete form or, if quoting in brief, reference
.
If you'd like to view RF's actual stock
trades - and see more of my thoughts - please feel free to sign up as a Twitter
follower - "taylorpamm" is my
handle.
If you'd like to see RF in action -
teaching people about investing - please feel free to view the TED talk that he
gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0
To unsubscribe please refer to the
bottom of the email.
Views expressed are provided for
information purposes only and should not be construed in any way as an offer,
an endorsement, or inducement to invest and is not in any way a testimony of,
or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not
registered and licensed brokers. This
message may contain information that is confidential or privileged and is intended
only for the individual or entity named above and does not constitute an offer
for or advice about any alternative investment product. Such advice can only be
made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future
performance. Please make sure to review important disclosures at the end of
each article.
Note: Joining BARRONS REPORT is not an
offering for any investment. It represents only the opinions of RF Culbertson
and Associates.
PAST RESULTS ARE NOT INDICATIVE OF
FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN
INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING
HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT
SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF
INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS
MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING
INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance can
be volatile. An investor could lose all or a substantial amount of his or her
investment. Often, alternative investment fund and account managers have total
trading authority over their funds or accounts; the use of a single advisor applying
generally similar trading programs could mean lack of diversification and,
consequently, higher risk. There is often no secondary market for an investor's
interest in alternative investments, and none is expected to develop.
All material presented herein is
believed to be reliable but we cannot attest to its accuracy. Opinions
expressed in these reports may change without prior notice. Culbertson and/or
the staff may or may not have investments in any funds cited above.
Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.
R.F. Culbertson
