WASHINGTON, February 25, 2012 – Short column today, as we’re exhausted from a whirlwind trip to our old hometown, Cleveland Ohio, to attend a benefit dinner at our old Jesuit High School. There was not much talk about sequestration up there or anywhere else for that matter. Voters are so bored with the political nonsense that they’re all tuning it out. So was the market late last week as the midweek’s violent correction gave way to a happy face Friday rally. Well, today’ we’re paying the price as the horror movie of the media week, the Italian election, has bumped both the sequester and the Academy Awards (which are probably still going on) from the front page.
According to breathless reports (which may or may not ultimately be true), it was looking increasingly likely this morning that the dreaded Berlusconi might be headed for victory in the current vote count, replacing the Monti government which Eurocrats and Wall Street types liked for its “serious” approach to Italy’s financial crisis. All this really meant, of course, was that Monti was more adept at kicking the can down the road than the flamboyant, corrupt, and—worst of all—nominally conservative Berlusconi. Bring out the garlic, wolfbane, and crucifixes.
All of this, of course, is more puff and nonsense. Whatever happens in Italy, Europe will have another short or medium term upheaval before they “solve” their collective fiscal problem by sweeping it under the rug again, rather than cutting rich public employee benefits; raising the retirement age from 25 to 28; and telling workers they might have to so something productive for 30 hours a week to get a full vacation.
Meanwhile, with all the dragon’s breath billowing forth from the White House about the upcoming sequester—all the Republicans’ fault, of course—the so-called draconian budget cuts are approximately the same negative number as the positive number, billed to the taxpayers, applied to the appropriation of East Coast Union Bailout funds, aka the Hurricane—excuse us, “Superstorm” Sandy relief effort. Little to none of this, of course, will go to Staten Island since they tend to vote for the wrong party. Small wonder why.
Just FYI, here’s a recent allegedly nonpartisan chart from the Congressional Budget Office (CBO) illustrating what fluff and nonsense the sequester really is. The barely perceptible portions of the bars on the bar chart below is the impact of the likely March 1 sequester on the whole budget scene for the next several fiscal years. You’ll immediately see the humor in this chart. We hope.
In any event, most voters with half a brain—all 10 of them, it seems—realized weeks ago that this whole sequestration bit of nonsense, invented by Obama himself to back the Republicans into a corner on Defense—is an utter non-event. What really might matter a bit more is the upcoming need for a continuing resolution to fund the government. So the Obama Perpetual Campaign Crew has gotten to work on that, blaming the Republicans for a government shut down in advance, trying to scare them into remembering what happened to Newt in 1995.
Here, let someone else, Daniel J. Mitchell, explain this in more detail:
“As I explained in these John Stossel and Judge Napolitano interviews, the politicians and interest groups have given us a budget process that assumes ever-increasing spending levels, which then allows them to make hysterical claims about ‘savage’ and ‘draconian’ cuts whenever spending doesn’t rise as fast as some hypothetical baseline.
“This is why almost nobody understands that it’s actually relatively simple to balance the budget with a modest bit of spending restraint. My goal is reducing the burden of government spending, not fiscal balance, but it’s worth noting that we’d have a balanced budget in just 10 years if spending grew by ‘only’ 3.4 percent annually.”
As an old merchant marine pal of the Maven’s back in the day once said, “Truer words was never spoke.”
In short, the whole Washington budget mess, like the Italian budget mess, is a lot of hoopla and lies from the corrupt politicians and corrupt journalists, and voters are tuning it out. They don’t care.
Neither, actually, does Wall Street. Traders are busy selling things off again not because of Berlusconi, not because of the Evil, “mean-spirited” Republicans, but, well, just because. Just because, via the Fed’s massive QE punchbowl, they’ve made a ton of coin since January 1 and they’re taking at least some of it off the table now before our elected representative actually get serious and really do cause irreparable harm to the economy.
Our afternoon trades…
The market is staggering into its final half hour of trading with the Dow down over 100 points and with the S&P and NASDAQ looking pretty sick as well. Volume, as usual, is up on a big selling day, and the VIX, the measure of volatility that everyone ignores until it spikes, is spiking ever higher now, hitting roughly 18 as this trading day rounds third and limps home.
We’ve been selling all along for the last couple weeks so, even though our portfolios are taking a bit of a beating today, we’re sitting things out, wishing we’d upped our tiny position in the short S&P 500 ETF—SH by ticker symbol—on Friday. Maybe if we get an up-day tomorrow.
Interstingly, everything is getting hammered today except our beloved REITs and most of our MLPs (even though oil is getting battered and most MLFs are into oil and gas.) Some utilities are dicey, including our dicey but tried and true First Energy (FE) which, after a bunch of accounting, reported a net loss for its fourth quarter, largely due to making some realistic adjustments to its union pension funds—a wise long term move, but a disaster for the quarter’s balance sheet, which otherwise would have showed some black ink. That said, FE’s secure dividend, which is approaching 5.5% once again, is temping us to pick up a few more shares this afternoon on its move down.
Preferred stocks are holding up well, notably our currently-held PFF, one of two preferred dividend ETFs we tend to hold. And preferred stocks of REITs—which yield less but whose prices are less subject to whacks from the market and from surprise secondary issuance of more shares—are holding up nicely, too.
Maybe we’ll do something interesting tomorrow. But as we sign off here at 3:30 p.m. EST, the Dow is now down 125, so it’s likely the selloff will continue into tomorrow, making shorts a definite maybe.
See you then.
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.
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