WASHINGTON, August 18, 2013 – Stocks continued their August swan dive last week, flouting recent convention and continuing to swoon even during options expiration festivities. Clueless financial pundits tended to blame a renewed Fed ‘taper tantrum’ for the plunge. But it’s increasingly likely that anticipated fallout from the nearing Obamacare debacle is deeply involved in this action as well.
Friday’s trading closed out what proved to be the worst week of the year for the Dow Jones Industrials (DJI). The S&P 500 suffered as well, and the NASDAQ remained on its have and have-not roller coaster.
As a consequence of right-or-wrong Fed taper anticipation, traders have knocked the stuffing not only out of bonds but out of high-yielding stocks, preferred stocks, and our beloved REITs, leaving few safe places to hide when seeking safety in yield.
The financial punditocracy and the MSM have failed to point out what could be an even bigger factor in the market’s current decline: The looming poltergeist otherwise known as Obamacare.
The stock market has long proved a leading indicator of economic direction four to six months in the future. Obamacare will become a costly reality for most Americans come January 1, with its rickety, insecure insurance “exchanges” already set to open for business this October 1.
Obamacare will cause a massive hit to Americans’ buying power across the boards as well as assuring a permanent end to full time employment as we know it. Instinctively realizing this, consumers seem to be pulling back on their purchases already.
We’ve seen this pullback in the second quarter numbers of big consumer-oriented companies ranging from Coke (KO) and Wal-Mart (WMT) to even the savvy Macy’s (M) department store empire. Consumer fear is likely to get worse and could shock the economy this autumn with renewed recessionary zeal.
This week’s trading
To twist one of Elmer Fudd’s more famous admonitions, “be vewwy, vewwy careful” this week. The best moves are likely to be out of stocks and bonds rather than into them, and it’s probably best to pare your positions to a bare minimum.
At some point this week, we should see a sharp bounce upward as the market is quite oversold on a very short-term basis according to the very-reliable McClellan Oscillator. But this snapback could be a head-fake, so don’t get drawn in too deeply. Charts, indicators, and fundamentals all point to a continued downdraft that’s likely to continue into September unless the Fed, for some reason, chickens out and says they’ll keep the QE spigots open for at least another six months.
Interestingly, we discovered at least part of the reason why gold and silver–decisively crushed for nearly a year now–suddenly brightened last week. That’s when former hedge-fund genius John Paulson disclosed the mass dumping of most of his gigantic gold holdings in the second quarter to the tune of a $736 million dollar loss, give or take a few thousand. Hubris still has its price.
While there’s other nonsense going on in precious metals, Paulson’s indiscriminate capitulation-dump triggered heaven knows how many stops in the second quarter, making things even worse on the downside.
With Paulson’s exit duly reported and out of the way last week, the lid seems to have come off precious metals—particularly gold—and the yellow stuff made a mighty move last week as the relentless Paulson selling pressure appeared to have lifted.
All of which gives us a clue as to what traders should do this week if they have nerves of steel. Gold and silver look good now for at least a quick trade. Given our current suspicion of paper gold ETFs like GLD, we’d prefer to take positions in the actual metal, which is physically held by the Swiss gold ETF (SGOL) and the Sprott physical gold ETF (PHYS).
BTW, SGOL can be bought commission-free at Schwab (where we currently trade) and possibly at other discount houses as well. And no, that’s not a commercial, just a reportable fact.
More daring traders may want to dabble in the silver ETF (SLV). Frankly, we’ve made money and lost money on this wild investment ride. Silver is one slippery character, so be careful here even if you have nerves of steel, because Mr. Market doesn’t care about you, your family, or your future.
Otherwise, we’d stay clear of the action and in cash as much as possible.
Selling our high-yielding stocks like utilities and REITs over the past two weeks has broken our yield-loving hearts. But these and practically everything else will remain highly vulnerable this week and for the next few, except maybe for Apple, so long as Uncle Carl keeps illegally tweeting nice things about his position in the hope you’ll help him make a tidy profit.
(Full disclosure: We own three shares of AAPL, just to see what happens.)
As Smokey the Bear used to say: Stay Alert! Stay Alive!
* Cartoon above by Branco, reprinted with permission. Linked from LegalInsurrection.com.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently owns AAPL and may get back into some precious metals ETFs this week if action justifies the move.
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.
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