WASHINGTON, April 24, 2012 – This morning we’ll start out by continuing yesterday’s “stock market as entertainment” motif. This time, we’ll risk the wrath of the Walt Disney company by recalling the 1950s, those golden early Boomer years when Captain Kangaroo and the Mickey Mouse Club ruled those early TV airwaves in the morning and in the after-school afternoon respectively.
We’ll leave the Captain alone right now, and head for those lovable Mousketeers, including the adorable Annette Funicello, for whom every weekday afternoon was a special adventure. So much so, in fact, that each individual day had a pre-ordained motif. I forget what some of them were now, but the one I remember was the grab-bag day: Anything Can Happen Day. And that’s a good thing, because today—and likely tomorrow—will most assuredly be Anything Can Happen Days on Wall Street.
As I write this, roughly half an hour before market open, Dow index futures are up nicely, approximately 34 points. The S&P 500 futures, probably a better indication of the market as a whole, are up a measly 1.30 or thereabouts. But the NASDAQ (which we affectionately call the NAZZ in unguarded moments) is down about 1.30.
What this tells us is that large cap stocks—as characterized by the Dow Jones Industrials—will have a nice open, probably due to good feelings surrounding earnings beats announced after the close yesterday by AT&T (symbol T) and 3M (symbol MMM for some mysterious reason). The S&P is playing Kilroy with its fearful but inquisitive metaphorical eyeballs peeking up over the edge of the cliff. And the NAZZ, controlled heavily now by the heavy weighting of Apple and associated techs—is still inclined to be in a selling mood as the Apple empire reports earnings after today’s close, keeping everyone on the edge of their collective seats.
With regard to Apple, it’s silly to think that one single stock—which, just over 15 years ago was actually breathing its last, before the Second Coming of Steve Jobs—should so dominate the tech-heavy NAZZ, but there you go. And therein lies part of the problem. The stock has become heavily over-owned. No portfolio manager wants to be without it. No individual with enough money to own a few shares wants to be out of it lest he lose bragging rights to his friends who have it. And, until last week anyway, even the high-frequency traders’ clever, ever-morphing algorithms had learned that the best way to become Wall Street roadkill is to short Apple, ever.
Things change, though. Sooner or later, Wall Street’s brightest minds—and I use the term loosely—figured that Apple might actually “disappoint” with today’s earnings reports. Which for Apple, would mean that the company wouldn’t beat earnings and/or profit estimates by more than a few cents. So some institutions have been tip-toeing out of the stock. Which, given their sizeable positions, didn’t stay quiet for long as the stock has been hammered down roughly 10% from its high over just the last few sessions.
At any rate, traders are so transfixed by Apple that the market is likely to be schizoid today, with the big boys spreading and/or trading on rumors—illegal, but done all the time as the SEC watches and its Federal employees wait for their opportunity jump the fence and join the bad guys and their horrible bonuses.
All this happy nonsense, though, masks what’s really going on underneath the surface and has been for at least a few weeks. In the main, the big boys have been quietly selling and raising cash while urging you and me to buy stocks because the market will only go up this year. It’s an old game, but since I’m an old guy, I’m on to it and you should be, too.
Remember the old adage, “Sell in May and go away.” Well, the big boys decided to get a jump on things and start selling early which is really what you’re seeing. Since volume remains low by historical standards, it’s they, not you and me, who’ve been doing the bulk of the trading, and they like the occasional up day to sucker people in, raising the price of their holdings just a little bit so they can sell at a better price tomorrow.
Granted, as we reported yesterday, the political tone of world markets is “not so good.” Sarkozy—a French linchpin, along with the Germans, of the cobbled together and largely bogus European rescue plan—is on the ropes this week in terms of earning another term as president.
After we wrote our column yesterday, it was announced that the government of the Netherlands had fallen, largely due to their inability to agree upon a budget. (Had they hired Harry Reid as a shadow advisor?)
Spain continued to wobble badly, a problem worsened by Argentina’s Hugo Chavez-loving government which decided to expropriate Spanish oil giant Repsol’s Argentinian subsidiary which had already endured years of Argentinian extortion. (What is it with these people?)
The Italians are in denial but hiding it masterfully.
And the Greeks—well, lest we forget, they have an election coming up soon and will be tempted to rebel against any “final deals” that won’t allow the average Greek citizen to retire at the age of 30.
Again, all this adds to the poor overall tone of the market anyway. But it’s the relentless background selling of the big boys that’s making the market a dangerous place to be these days.
What are we doing here? We’ve been lightening up gradually, but aren’t completely out of the market yet. Our general philosophy is that when the big boys are hammering down the prices, it’s best to go about life, lay low in the weeds, and wait for the big sale on stocks that will inevitably occur.
What do we do with our money? There are actually few places to hide. There’s the moneymarket of course, if you don’t mind making .01% or so on your hard-earned dollars. There’s treasurys, safer but even worse, given that the shorter term vehicles are trading at essentially negative interest right now.
But for the brave, there are the various real estate REITS out there which we’ll discuss in detail in an upcoming “Prudent Man” column. Meanwhile, we should all continue to pare back our portfolios judiciously, keeping any stable REITS we might have (along with some of their cousins, MLPs), and perhaps hanging on to a few high-yielding utilities and one or two telcos (like AT&T or Verizon). In an environment like this, pretty much everything is likely to go down, at least in an irregular fashion. But stocks like the ones we’ve mentioned are protected by their dividends, and protection is what we all need right now.
Have a good morning. We’re about to open. Anything Can Happen.
(Comments in this column should not be construed under any circumstances as buy or sell recommendations. Travel at your own risk.)
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