WASHINGTON, June 21, 2012 – We’re at our desk early this morning and the futures are telling us (at 7:30 a.m. EDT) that we’re in for another tepid morning, courtesy of the market’s “disappointment” with yesterday’s Fed report. To wit, the Fed will continue its “Operation Twist” activities a bit longer, but for now will keep its powder dry. This statement, looking beyond the obvious, is the Fed’s sneaky way of saying they’re still scared to death of what Europe is up to and want to keep their powder dry for a worse-case scenario.
And what might that be. Let us count the (possible) ways:
- We were shocked, shocked, to discover that the “talks” with Iran to resolve the nuclear issue concluded yesterday with zero results. Our question is, why did anyone even bother with the “talks,” since this was a foregone conclusion. Iran doesn’t negotiate. It stalls. They never had any intention of resolving anything. The current outcome, which could have been foreseen months—no years—ago, puts some kind of military action vs. Iran’s nuclear facilities back on the table. October surprise, anyone? This action, when it comes, will have a disastrous effect on the averages and unknown fallout abroad.
- Europe continues to resolutely avoid doing anything serious about its debt and monetary crises. As in the U.S., the pols just kick the can down the road. As they used to say in the old Midas Muffler commercials, “You can pay me now or you can pay me later.” With the “later” option always being dramatically more expensive. Guess which option the West’s political elite is planning to saddle the taxpayers with? When a major collapse comes, it will take the market with it.
- You’re not hearing a lot on the news about the 2013 “fiscal cliff.” That’s because the Democrats in Congress and the Administration don’t want you to hear a lot of news about the 2013 “fiscal cliff.” What is it? Simple. The “Bush tax cuts” are set to expire on December 31, 2012. When they do, everybody will get a big tax increase. The ludicrous and self-destructive payroll tax reduction will disappear, “raising” FICA deductions back to where they were. And Obamacare taxes will start to kick in, barring a setback this week or next by the Supremes. This will have a catastrophic effect on business and unemployment.
- Election 2012 looms in November. Until it’s resolved, nobody—neither corporations nor individuals—will be willing to go out on a limb for anything. Consequently, retail sales will slack off, companies will be tempted to lay off employees as a defensive maneuver, and the EPA will continue its quiet but determined mission to raise the costs of fossil fuels past the ability of individuals to purchase fossil fuels, except maybe Warren Buffett or Al Gore. This is effectively an additional tax that cuts back on future consumption, and it’s killing the economy at its heart.
The market reflects all these uncertainties, and is likely to remain under pressure for the remainder of the year. Nice rallies may occur, just as a pressure-release valve. But Western economies are on the verge of being declared mortally wounded. Elite politicians, insulated by wealth, along with their crony capitalist enablers, are courting the kind of voter wrath the West has not seen for quite some time.
“Occupy Wall Street” was a stupid movement populated largely by rich, entitled kids marching to the socialist line taught them by their Marxist professors and their SEIU funders. With no intellectual leg to stand on, that’s why this idiocy failed. But if elite do-nothingism continues much longer, a new movement will arise, populated by an angry and now nearly destroyed middle class. And if and when it does, all those ex-Occupiers will soon learn a grim lesson about how a genuine grassroots revolution is really done.
We know, it’s boring, but our advice: stay near the sidelines until further notice. We are—retaining high yielding positions and vintage bond holdings while occasionally getting scared and covering them with short ETFs. You can’t trade this market unless you have a couple servants bringing you food and water (or something stronger) as you sit, eyes glued to the computer, each and every trading day. When something happens, it happens that fast. If you can’t devote that much attention to the market, it’s best to stay out these days.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
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Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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