Wall Street decision time: Rally or taper tantrum

Market awaits Fed's latest enigmatic statement. Photo: Malaysian Tapir/Wikimedia

WASHINGTON, June 18, 2013 — This is one of those days where it becomes a struggle to write anything coherent on the stock market. In the U.S. and throughout the world today, the activities and pronouncements of central bankers drive international markets up and down, and the action has little to do, generally, with corporate P&L statements. Politicians worldwide have sacrificed duty in favor of electability, so it’s left to central banks to use what tools they have to sustain the illusion that things are getting better.

U.S. markets are in the spotlight this week, as they wax hot and cold on low volume, awaiting Fed Chair Ben Bernanke’s pronouncements on Wednesday. All eyes, once again, will be on the “taper,” the notion that at some point, perhaps soon, the Fed will start slowing its relentless bond purchasing program in an attempt to coax the economy back to normal, meaning higher interest rates.

The Fed’s current easy money policy, aka QE, has been a great success if you’re a big banker. The big guys either stash the money in their vaults to draw interest income, or put it to work in the market inflating the price of stocks.

At some point, we suspect, the Fed figured that at least some of this money would get lent out to the little guys and small businesses that create products and jobs. But throughout the Great Recession/Great Depression II, all those hundreds of billions of dollars have largely remained parked on the sidelines or lining the pockets of banking and corporate bigwigs who’ve benefited mightily from the January-May 2013 bull market in stocks.

In the meantime, the little guy has seen his payroll taxes “doubled” (i.e., returned to normal rates); his health insurance premiums continue to soar; and, particularly if he lives in New York, Illinois, or California, his over all tax burden to rocket dangerously close to the astronomical percentages of socialist Sweden, which, interestingly enough, has begun to roll its taxes back.

In other words, the little guy hasn’t benefited one bit from all the money sloshing around, due to Congress’ continued refusal to do anything about structural reform.


SEE RELATED: Stock market rally likely to continue, with gold an outlier


Which brings us back to the stock market. Its tone yesterday and, thus far (11 a.m. EDT) today, has been positive on light volume as those traders who are playing seem to believe the Fed will exile that dreaded taper deeper into the forest primeval, at least for the time being.

The market took a sudden hit yesterday afternoon when the “Financial Times” (FT) hinted that the taper would happen sooner than we think. But bulls took back control, and seem to be driving today as well, at least for now.

Any further hint, though, at any time that the Fed might be letting the punchbowl drain, however slowly, will T-bone Wall Street in a sickening fashion. Therefore, the bulk of investors are mostly acting like our lazy Malaysian tapir in the photo above, just sitting around waiting to hear what the Fed says tomorrow before taking further risks.

In an alternative scenario, more likely in Wall Street’s hallowed precincts, the 1% will hover near their speakerphones, waiting for the early inside tip from one of the informers they have parked at the Fed before they pounce, one way or the other, in massive fashion. In which case, it’s good for us to stay out of their way. Little traders aren’t generally able to get this illegal insider info.


SEE RELATED: Fear the taper: What’s really behind the REIT decline


So we continue to keep our powder mostly dry. If we have to miss a big rally on good news tomorrow, so be it. The consequences of being fully invested and getting negative news tomorrow are simply too great, at least for the Maven.

Profits through May were exceptional, until we started to lose money late last month, which resulted in our loading up on cash. We’ll mostly stay there until the smoke clears. We hate to give away our winnings by hanging in there during one or two bad months. So we’ve cashed out chips and will mostly keep our money in the vault until we can read those tea leaves once again.

Today’s trades:

We’ve already yanked our tiny position in gold ETF IAU for about a 3.5 percent loss, but we’re holding our equally small position in PHYS, the Sprott physical gold ETF (they actually hold the bullion) for now. Neither position is particularly justified now, serving merely as a token gold holding in case things get nasty in the Middle East or if the dollar takes a worse dive than it’s already been taking.

Otherwise, our large portfolio remains about 20 percent in bonds we’ve held for a long time (since March 2009 when we bought them at a huge discount). They’re trading above par (over their face value) now, but even if they drop in a bond selloff, we’ll still make a substantial profit on them, so we figure we might as well sit back and take the interest.

Stock-wise, we’re still in the holding period (broker rules) for two IPOs, ChannelAdvisor (ECOM) and Ply-Gem Holdings (PGEM). We also hold minimal positions in several Schwab ETFs representing the general and large cap markets (SCHX, SCHV, SCHB and SCHD); the tech-select SPDR ETF (XLK—Apple don’t fail us now); credit card processor Vantiv (VNTV, a secondary offering holdover that’s still way in the green); the double-bullish oil ETF (UCO, held as a hedge against Middle East issues); a few shares of First Interstate Bankshares (FIBK); a small position in tech company Vishay Intertech (VSH); a couple hundred (losing) shares in our favorite high-yielding utility, First Energy (FE); and modest positions in a couple of interesting, actively-managed ETFs that deserve a column all to themselves.

But we’re still nearly 50 percent cash in this portfolio, near 80 percent cash in the others, and we’re prepared to sell at a moment’s notice rather than jeopardize a swell year thus far.

At the moment, if you’ve made money too, we advise you to do the same. But also remember: Ben could make a liar out of the Maven tomorrow, so travel, with caution, at your own risk.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

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.

Follow Terry on Twitter @terryp17


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  

 

 

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