WASHINGTON, November 9, 2012 – The market began trading this morning with its customary post-election tank-a-rama, with the down quickly swooning south first 25, then 50, then around 70 points in negative territory within minutes of the opening bell. Then, for some strange reason, it started clawing back. Now, as of about 1 p.m. EST, the Dow is actually flirting with 70 points on the upside.
The possible reason for this rapid whipsaw? Somewhere after the open, “they” (the investments and firms who always find out about important news before we do) got wind that the President would announce he was meeting with leaders of Congress next week on solving the “fiscal cliff” issue. This refers to the massive tax increase and draconian (primarily military) budget cuts set to drop into place after the turn of the year, given inaction on the part of Congress and the White House.
Hope springs eternal, of course, so “they” moved the market upwards and, at least as of now, more buy side investors have jumped on the train. We’ll see if this little party holds into the close, when investors have to decide whether they want their positions to ride over this semi-long weekend. (Banks, the Feds [of course], and random others get a holiday on Monday, though stocks will continue to trade.) The answer to that question lately has been “No!” due to anything ranging from Iranian aggression to Syrian-Iranian religious genocide, to the possibility that the polar icecaps will be entirely gone by Monday.
At any rate, we’ll wait and see. Promises in Washington these days are about as believable as the Eurocrats’ continued promises that they have their monetary situation under complete control and the Greek government’s pledges that they’ll issue pink slips to their entire population to keep the country in the Euro. It’s sad when the only two governments on the planet that are prepared to make the really gutsy decisions are Iran and North Korea. Everyone else, including the Chicoms lately, just kicks that can.
Apple (AAPL) is popping nicely today after an extended nearly 200 point hammering of its common stock in recent trading. Stories about Apple appearing in the financial media over the last two or three weeks in particular have been about as uniformly negative as stories about George W. Bush continue to be. In both cases, the MSM has decided what their story is and they’re sticking with it. Which in Apple’s case, at least, is incredibly silly. The company continues to coin money, has successfully launched its new iPad Mini, and is likely to still have at least one new product in the R&D pipeline along with the company’s now-patented disruptive technologies.
Apple is not about to settle into Microsoft-style big cap complacency just yet, even without Steve Jobs at the helm. Oh, Apple will become a sleeping, Dow-style giant some day. But the latest market action has been pricing the stock for oblivion. Today the company is attempting a comeback. But the stock may actually be running into headwinds that have nothing to do with its profit margins, product mixes, or anything else that would make corporate sense.
What’s really been pancaking Apple—and most other stocks this week and since about the middle of October, really—is heavy, heavy, relentless selling by funds and wealthy individuals. We’re talking wave after wave of selling in otherwise fine companies that are still doing well. Like Apple. The reason for the selling is simple: the looming “fiscal cliff.” Any firm, fund, or investor who has a big capital gain in any given stock (can anyone say “Apple?”) is taking it right now rather than risk the consequences of a dramatically less favorable tax environment come 2013.
Right, firms and investors might very well be wrong about the fiscal cliff. Maybe the President and Congress will make all nice next week and magically figure out a way to raise huge amount of revenue without any tax cut at all while giving away free iPhones to a grateful nation that somehow won’t be able to pay for them.
Fact is, after all the shouting died down Wednesday morning, the U.S. found itself in precisely the same position it was in before the election: Obama is still President; Harry Reid still runs the do-nothing Senate adding even a couple more Democrat buddies to revile Republicans for at least the next two years; and John Boehner maintained his substantial Republican House majority with barely a nick or two, given America’s talent for incumbent-protecting gerrymandering of the highest order.
You can ask what the electorate was thinking on Tuesday. They allegedly hated the whole lot of Washington politicians. So why they re-elected nearly the entire slate of miscreants is really beyond the Maven. But that’s exactly what they did.
So now this Gang That Couldn’t Shoot Straight is somehow going to magically get us out of our mess next week, right? That appears to be the reason for Wall Street’s weird rally today. Maybe it’s just the HFTs running off the headlines today. At any rate, we don’t trust the selling or the buying waves in this environment, so we are still mostly standing aside, about 30-40% cash depending.
We did pick up a couple hundred shares of Legacy Reserves LLC (LGCY), a Master Limited Partnership (MLP) on a secondary offering this morning. A secondary is vaguely like an IPO, except that the new stock issued is just that—new stock, adding to existing shares of an already publicly traded company which LGCY is. Given the possibility that dividends, too, could be eviscerated by new taxes next year, MLPs, REITs, and even boring but high-yielding utilities have been selling off. But this is silly. You still get a better return off this stuff than you do off T-bills or money market funds, new taxes notwithstanding.
Plus, as we read it, these new taxes (spinoff creatures of the looming Obamacare debacle), will allegedly only get levied on “the rich” (i.e., “millionaires” who make over $200-250K); and, as we read it, these dividends won’t be taxed in IRAs either, although we must regard every assumption we make as a movable feast, given Congress’ propensity to tinker constantly with the code. (This drives anal retentive, tax-planning type people nuts, BTW, because their forecasting can be rendered inoperative by a single Congressman who’s had one too many at a Capital Hill watering hole before a crucial vote.)
Anyhow, let’s enjoy the rally as long as it lasts, perhaps using it to get rid of a few profitable positions ourselves.
Then, let’s enjoy the weekend, happy and carefree in the knowledge that the American people have put Congress and the White House back in capable hands at last.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He acquired shares in LGCY this morning in a secondary offering, and also put on a small hedge with the S&P 500 Index short ETF, symbol SH.
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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