WASHINGTON, March 4, 2013 – Stocks are meandering this morning without any particular direction, with the Dow down 25-45 points this morning depending on when you look. China is pushing for more internal austerity this morning which markets don’t like. On the other had, Fed vice-chair (and rumored Ben Bernanke successor) Janet Yellen has been defending the Fed’s printing press policy when it comes to inflating the currency.
“Downplaying the potential costs of the Fed’s unconventional easing efforts, which currently include $85 billion in monthly asset purchases, Yellen highlighted the dangers of a prolonged period of economic malaise,” Reuters reported this morning.
“‘Insufficiently forceful action to achieve our dual mandate also entails costs and risks,’ Yellen told a conference sponsored by the National Association of Business Economists. ‘At present, I view the balance of risks still calling for highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment.’”
In other words, the Fed still has zero intentions of removing the punchbowl from the party. For today at least.
Meanwhile, back at the sequester…. Wait a minute. What sequester? In spite of all the Administration’s dire and phony threats of economic Armageddon, the world didn’t end Friday, which is likely why it’s meandering today, wondering whether to believe Yellen, the Chicoms, Obama, or—best bet—nothing at all.
If you note the figure in the Reuters story above—$85 billion a month in asset purchases, aka, adding inflated dollars to the economy for which taxpayers are ultimately on the hook—just one month of running the printing presses cancels out estimates of the entire dreaded sequester. Which illustrates the sheer fecklessness of Washington’s leftist political elite. The dreaded sequester would appear to have meant precisely nothing. Which, after an initial burst of sheer terror (and pre-planned hedge fund selling) the market at least briefly caught a second wind last week.
Professional investors and HFTs have been selling steadily but quietly while talking their books—like Warren Buffett, for example, who again appeared on CNBC while talking up the virtues of continuously buying stocks. Warren can do it, because his portfolio is hedged up to its metaphorical eyeballs. But can you?
Likely not. Ditto the Maven. So let’s cut the nonsense. We’re staying with our program, so let’s move right along to the nuts and bolts.
How to play today’s action:
The much-vaunted “pros” on CNBC like to keep pitching the old 1980s-1990s game that this is a “market of stocks” and so you should buy Company X and Company Y, too. Which stocks, of course, these “pros” never tell you are currently profitable in their own portfolios, meaning they’d like to sell those stocks to you so you can hold them while they crash. We’ve been slowly dumping stocks like they do because our chart services—for what they’re worth in this lunatic market—are screaming SELL at us, and yes, we’re SHOUTING SELL!
That said, no need to panic if you’ve been paring positions all along.
On the other hand, we’ve been developing mild short positions. Nothing too drastic, mind. If we’re wrong (always a distinct possibility in a market whose political component is still being run by petulant adolescents masquerading as statesmen), we won’t get damaged too much. If we’re right, we get to make money while those who listen to CNBC’s “pros,” including Uncle Warren, will get killed as is customary.
We’ve had a small position in the S&P 500 short ETF (SH) and are still mildly down in the position. We’re not adding to it, but we’re holding it as it’s approaching breakeven this morning and may start going up if today’s market tone persists. But it’s a slow mover. So to get a little more juice into the anticipated downside action, we’re meandering into additional short ETFs in more specific areas, namely: GLL (the double-short gold—careful here); EUO (the double short Euro—remember Italy?); and EEV (the double short emerging markets ETF, due for a correction with Chicom economic nervousness).
Our main chart service still has sells on for every sector by the U.S. long Treasury bond and the dollar. Doesn’t say much for stocks, does it? They look wobbly, particularly the industrials. (Guess that means taxpayers are still losing their shirts on their investment in GM’s unions, too.)
However, utilities still look attractive to us in spite of the sell signals. We still like the hapless First Energy (FE) and are waiting for another big dip to buy more. Minnesota’s weird, multi-industry utility, Otter Tail Power (OTTR), long a personal favorite of the Maven’s, is looking better and better with a swell dividend, too. And FE neighbor American Electric Power (AEP) is looking nice, too, now that everybody knows that all their old coal plants are getting guillotined, courtesy of the out-of-control EPA.
Other companies looking attractive on a big dip might be former zombie company Xerox (XRX) which has been morphing for years from a copy company to more of an outsourcing, consulting, and business management play; First Interstate Bank (FIBK), a small Montana outfit you never heard of with branches in and around the Bakken shale real estate; and, if you can catch it on a down move, Marathon Petroleum (MPC), the refining arm spun off from the Marathon Oil (MRO) mother ship last year whose dividend and profit numbers have been eye-popping. We’ve already made money in this one twice, and probably should never have sold it. But it looks poised for another run if the coast gets clear, so again, we’re looking for a dip that might, unfortunately never come.
But mostly, it’s short city for us right now. Oh, you could add in a TIPs bond ETF like Schwab’s SCHP for a little insurance if the Fed’s pump priming gets out of hand. But by and large, the market would like to correct at least a little bit before the next crisis—the budget ceiling issue in late March—starts hogging the terror headlines. That’s fine for us as long as we’re mostly not in it or mostly short.
So keep your eyes open, don’t believe anyone who says they’re from Washington and want to help, don’t get too long, and get shorty instead. Within reason. Like the Greeks used to say before they became the modern Greeks: Nothing to Excess.
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.
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 ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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