WASHINGTON, November 29, 2012 – Yesterday afternoon, after some nicey-nice comments about fiscal cliff progress emanated from the White House, the market staged a sharp, exciting rally with nearly all market sectors ending up in the plus column. This morning’s markets saw an impressive follow through as bullish sentiments permeated even the battered financial sector. But less than an hour ago, House Speaker John Boehner, in comments to the press, declared that the “Democrats have yet to get serious about real spending cuts.” He further observed that there’s been “no substantial progress” in the last two weeks and that it’s “time for adult leadership” from the President and from the other side of the aisle.
All this, of course, is Boehner-Washingtonspeak code for “we’re being gamed again.” In other words, the Dems, as anyone with a brain might have suspected, are pushing for massive tax increases while making no serious moves themselves in the direction of budget cutting lest they cause even the least bit of harm to the substantial constituencies they’ve been accustomed to bribing over the years with plenty of taxpayer dollars. After this November’s election results, they regard this issue as being settled, so if they can’t get their way, it will, as always, be the Republicans’ fault. It’s so easy. And, as we saw earlier this month, the average voter is so clueless.
We’ve predicted many times that the Democrats’ idea of a “bipartisan” budget deal with the Republicans would be one in which the GOP would be forced to swallow huge tax increases—incurring the wrath of their own constituencies—while settling for vague Democrat-designated budget-cutting “goals” whose target dates are so far down the road that they will never happen. The Democrats have been consistent for decades: extract wealth and savings from anyone who has any money left, and recycle it to their favored constituencies, thereby assuring that they remain in power no matter what the rest of the country might think.
Other sites have speculated that the Democrats may actually want us to go over the fiscal cliff so they can successfully blame the Republicans for the disaster. It’s all about power and not about common sense. It’s the same thing popular cliques do all the time—maintain power primarily by destroying the reputations of anyone who might dare to oppose them. It’s successful in high school, and it was certainly successful for the Democrats in the recent national elections, keeping the Redistributor-in-Chief in power and preventing the Senate from changing hands. Hence, Boehner’s tart remarks about adult leadership. He knows what’s going on. Problem is, the state-controlled media will never let the truth be known.
In any event, it’s political Russian Roulette time, and we’ll now have successive Battles of the Press Conferences. Which gets us back to the markets. Replicating the situation on Capitol Hill, most rational investors, advisors, and funds seem to have been selling and raising cash before leaving town to stuff those funds into their real or metaphorical mattresses. This, in turn, has left the market to all those playful, high-speed computers, turning the market into a reflection of the news cycle more than anything else.
We held off writing this column a bit today just to test a theory we have on this—namely that the markets, now almost entirely under the thrall of high-frequency trading (HFT) algorithms, are no longer moving in accordance with investment theories, charts, or fundamental analysis and projection. As of 12:15 today, we can now conclude that, at least until the current “fiscal cliff” nonsense plays out in Washington, markets will tend to move in lockstep up or down and only in accordance with the headlines—nothing else. Plus, Dr. Evil may be involved in an additional, maddening sideshow. But we’ll get to him in a minute.
What the average investor may not understand is that the algorithms that drive the HFT communities’ computers are based not on any rational analysis but on the ebb and flow of the daily news cycle. Whatever the press puts on the front page will drive the market up or down on any given day. The algos just pick up the headlines and run with them. Simple, easy. And with their incredible speed, they can get out in front of the news cycle faster than anyone else, particularly when they’re getting insider scoops from companies and media alike—illegal, of course, but this is irrelevant since the bulk of these pirates give heavily to Democrats anyway and know they won’t get caught by the regulators who are also largely Democrats. It’s a tidy system.
And we’ve seen it in action yesterday and today, with HFTs front-running the happy talk yesterday and this morning, and then entirely reversing field during and after Boehner’s sour remarks. In the time elapsed since we began to write this column the tanking market has reversed to the upside again. God only knows what the computers have picked up now. We’ll eventually find out of course, but the HFTs will already have entered and exited their trades, aided and abetted by tons of false quotes that serve to mislead and ultimately screw small investors like us whose computers, although very nice machines, don’t pack the machismo of what the HFT thieves can afford.
This is a nasty market. But you can trade it if you’re a news junkie. By staying abreast of the trend of the moment, you can actually surf the waves these HFTs create. But to do that, you have to sit in front of your screen without a bathroom break from the opening to the closing bell. Most of us don’t have that kind of time. Plus, we’re playing against high-speed computers that don’t get tired, don’t need to eat, and don’t have to pee.
Frequently, one way to build a firewall in such times as these is to accumulate utility stocks and gold and silver ETFs. Even here, however, there’s a problem. If our barrel goes over the fiscal cliff—increasingly likely we think—then starting in 2013, the government will start taxing the daylights out of dividends and capital gains. That’s part of the reason for the recent selloffs, with individual investors, hedgies, and other trading houses taking in capital gains before the tax goes up on them; and booking the final dividends of the year before dumping stocks like utilities, MLPs and REITs (the latter two of which do retain, for now, some tax advantages).
Plus, gold and silver—both the metals and the ETFs—have lately been subjected ever more boldly with a time-honored way to screw real investors while raking in big profits. It’s called the “bear raid,” and it happens, almost like clockwork generally around the early part of each month’s last week, when gold and silver options expire—different from the normal stock options cycle. These bear raids are complicated and organized. For a better understanding of this, we refer you to Jesse’s Café Américain where what he calls the “Dr. Evil strategy” (sharks with laser beams) is explained in some shocking detail.
Bottom line: even if you try to be careful and hedge your portfolio with some real or virtual gold and silver, the bear raiders are likely to sack you anyway, particularly if you’re a margin investor.
Anyhow, that’s the kind of markets we have these days. They’re run of, by, and for a small armada of insider thieves, aided and abetted in their actions by a Democrat-led government whose regulators look the other way nearly all the time. It shows you, actually, who the “party of the rich” really happens to be, and it’s not the hapless Republicans. The system is incredibly rotten, but it will stay that way until folks stop believing the media’s relentless propaganda.
In the meantime, we’re going to adjust our investing strategy, at least for now, and try, whenever we can, to piggyback on the rapid-fire moves of the professional thieves who now control our financial systems.
Creepy. But you have to be realistic. We’re nibbling back into utilities right now because they’re oversold. We continue to hold gold and silver ETFs (IAU and SLV), since the latest monthly bear raid now appears to be over. But we’re still keeping most of our powder dry.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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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