WASHINGTON, October 1, 2012 – If this is Monday, we must already be in October, always feared as the market’s cruelest month. Except that it really isn’t. Much of the time, anyway.
Brokers still fear what can happen in October, based on the market crashes of 1929 and 1987, but much of the time throughout Wall Street history, the disaster month is September. That said, even this past September, just concluded, wasn’t so bad either. Aside from a couple of days when investors had to endure near-terminal heart palpitations, things ended up not so bad. So what do we have to look forward to this October, 2012? Our definitive answer: who knows?
For example, banks are looking nice as of high noon today. But they haven’t looked so hot for the past week and who’s to say what will happen if the Eurocrats run out of ways to kick the can down the road again?
Manufacturing is looking a little prettier, given rumors (never facts) that the Chinese are trying to nicely inflate that sector. But then again, like America’s Democrats, the Chicoms proclaim what the current truth is and we’re expected to believe them, throwing logic to the wind. It’s worked for both these flavors of the left forever, so why should they quit fibbing now? So you have to take whatever either of these parties has to say with a grain of salt.
If the Chinese inflate, that might be a swell short term solution to a lot of problems. But again, like Saint Thomas, we won’t really know whether they’re telling the objective truth or not until we can actually touch some of the output.
The Fed is priming the pump to beat the band, now suggesting they won’t stop until unemployment drops below 7%. This is an obvious assist to Washington’s Dude-in-Chief as he and the State-controlled media doctor the polls to such a degree that it would seem plausible and honorable for Mitt Romney to roll up his campaign this afternoon and concede defeat to our Dear Leader.
Speaking of whom—well, in an election year there’s always the risk of that October surprise that’s usually sprung by the incumbent, except back in 2004 when the surprise was Dan Rather’s “fake but accurate” Memogate Memo that was meant to derail the incumbent. (How’d that work out for ya, CBS?)
But back to the Fed. Whether they’re trying to avoid another “bump in the road” for President Obama or not, they’re pumping money into the system. You and I won’t see it, of course. We never do, of course, as most of that money is going into the vaults of “too big to fail” institutions, with perhaps a few billion being skimmed off to ensure those end-of-year bonuses will be enough to pay cash for that much needed 10,000 sq. ft. addition to those too-small mansions in Connecticut and the Hamptons.
If the little guy and small businesses could even glimpse a fraction of this treasure trove via home and small business loan activity, we’d already be in the midst of a boffo recovery. But we’ll just have to assign this to the “Oh well” Department for now. For the average small business, wage earner, or long term unemployed, it’s just lack-of-business-as-usual these days.
What could be a problem for this Cloud Cuckoo Land October scenario is, as we’ve mentioned, the looming “tax cliff” that will make the tax-happy Eurocrats look like amateurs if it actually happens on January 1. Odds are that it will in some way, shape, or form.
Even if the Republicans take the Senate and/or the White House in November, sore-loser Democrats, heedless of the damage they’ve caused already, will either stonewall a tax deal or force one that jacks a lot of taxes anyway just to screw the Republicans one way or another and hamper their ability to quickly begin to right things in January.
If the Dems win the Senate and White House sweeps, well, all the Republicans will be able to do is, via House veto, force a few minimal amendments that will perhaps lessen the sting if not the scope of a massive tax increase.
In either case, it don’t look too good, so watch for professional investors to start pulling in their horns, taking profits, and hedging remaining positions going in to the elections. If anyone has a profit in his or her account at this point, he or she will be inclined to take it and sit on the sidelines until the smoke occurs. Waiting too long to do this in an election year would make numbers look poor, and no one wants that.
In addition, investors will want to watch for last-minute “special dividends” that some companies might want to pay out before December 31 before the Obamacare taxes start clobbering dividends and capital gains. This idiotic idea will drive more people from the market just as the Fed is trying to get them in to inflate asset prices.
Our real problem these days is that the Executive and Legislative branches are zeroing each other out. In the meantime, the Supreme Court has been at least temporarily neutered lest their independence start getting hammered by resentful November victors come January.
So in effect, American citizens are paying a vast quantity of money for a government that is really doing nothing at all to fix anything—except for the always counter-productive EPA which is doing its best to exterminate any business that has anything whatsoever to do with fossil fuels. That’s a policy, of sorts, we guess, but you can see where that policy will end.
We hate to sound so bloody negative these days, as we are essentially optimists at heart. But living here in DC and seeing the almost pathological amount of stupidity that voters re-elect year in and year out, we no longer see much room for improvement in the years ahead no matter who wins in November. We’ve now enabled a government completed by, of, and for the kleptocrats and we seem incredibly happy to pay for it, while reviling the Fed—the only remaining adults in DC—for doing what little they can do to keep the fiscal dike from being completely destroyed.
So our position remains fairly consistent. Trim REITs a bit (vs. the January tax cliff) but don’t trim ‘em all; start adding stable, high-dividend utilities like First Energy (FE), Detroit Edison (DTE), Southern Company (SO), and Centerpoint (CNP) to the mix; hold some position in gold (we use the IAU ETF, but GLD will also work); and keep raising cash by selling other stuff as the occasion warrants.
There are a lot of things we could like right now. But as conservative investors who simply want to make at least a little money but are willing to risk maybe 15% of the portfolio on crap shoots, we find too much of this market is a crap shoot that’s in the hands of the Eurocrats, the Iranians, and the media propaganda arm of the current administration. So we always need to ask ourselves the question: how much of our money, 401(k) or otherwise, to we want to risk when the tables are being staffed entirely by buffoons and murderers.
We report. You decide.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He is adding the gold ETF, IAU, to one of the portfolios and will increase the size of that investment over the next week or so .
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.
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