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Wednesday's Wild Start to 2013

ilene's picture





 

Wednesday's Wild Start to 2013

SPY 5 MINUTE Courtesy of Phil of Phil's Stock World

Happy New Year!

And what a way to start it off with our Futures flying up another 1.5% - on top of Monday's 2% gains you might have missed as we celebrated the non-event of the Fiscal Cliff that we kept saying not to worry about last year (see any post). On Monday morning's Alert, and in the Chat Room, I warned, as the market tanked, not to be too bearish, saying:

"Keep in mind that we need to spend 2 days below our levels to be officially bearish so let's hope we do get some good news today and take back those 50 dmas so we can treat them as a blip and throw the spike out in our forward calculations."  

As Dave Fry's SPY chart shows (right), we quickly reversed that bad open and flew higher. We looked over our virtual portfolios at 11:52 am and decided, fortunately, to maintain our very bullish stances based on the news available to us and our general attitude that the whole cliff thing was overdone.

We added long plays on GDX and CIM but maintained general hedges (medium-term) on TZA and USO - just in case talks broke down or the cliff deal turned out to be a "sell on the news" event - which still remains to be seen after this morning's excitement. We still have a long way to go before re-establishing a bullish position - as opposed to confirming a double top in the high end of our channel.

This morning, in Member Chat, we had 4 pages of extensive commentary on the cliff deal and Europe, 2012 in review and 2013 looking forward. I've commented over the last two weeks on why we are bullish about 2013 - especially in the housing sector.

Pimco's Mahamed El-Erian made the point well this weekend on why investors HAVE to have confidence in equities for 2013 - the Fed. El-Erian said: "If you have an institution that has a printing press in the basement, you respect it."  That's a nice, simple, investing premise...

As the chart on the right, from Business Insider, clearly illustrates, the Fiscal Crisis is very clearly the Republican's Fault (their title, not mine) as Federal Spending (red) had simply gone out of control at the same time as Tax Revenues (blue) had been cut to long-term lows.

Don't forget, Obama only did the 2010, 2011 and 2012 budgets and we're currently in the middle of Fiscal 2012. Obama is cutting the out-of-control spending - now the revenues need to catch up a bit and then we'll be making some progress - maybe on the way back to those Clinton surpluses that were squandered away at the turn of the century.

How did Bill Clinton reverse the "don't tax and spend anyway" policies during the 80's? He cut Government spending significantly and raised taxes significantly, in fairly equal measures - until those red and blue lines crossed back over each other. This is not complicated folks - we just have to have the will to do it and today is a good first step but it sure as Hell better not be the last!

Unfortunately, we have what the Rude Pundit aptly calls "A Congregation of Motherf*ckers in the Senate" as well as the House, of course, of GOP hard-liners who are willing to throw this country into chaos rather than allow their precious contributors to suffer tax increases. Just to get this deal past those same MF'ers, $205Bn in Corporate Tax Breaks were handed out to the people who need it the least.

Like $1.6Bn in tax-free financing for Goldman Sachs to build a new headquarters along with $9Bn in tax loopholes to banks and other lenders like GE, who can engage in certain lending practices and not pay taxes on income earned from it. According to this Washington Post piece, supporters of the bill include GE, Caterpillar, and JP Morgan. Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the “Active Financing Working Group.” With his $205Bn win for just $80,000, or even if you include $700,000 over the past few years, Elmendorf may be the most cost-effective employee in America (next to Grover Norquist, of course)...

$205Bn is more money in tax breaks than US Corporations pay in taxes - total!  It's also twice as much as the payroll tax cuts, which were lost by the people who work for these corporations (although 85% work for small businesses who don't get any benefits from these top 1% cuts). There are not small business tax breaks here. In fact, it's tax advantages like these that give large corporations unfair advantages that they then use to crush the life out of small businesses - further eroding the middle class - all the while crying crocodile tears about how eliminating tax cuts will hurt small business people.  MADNESS!

We know we're going to get a knee-jerk rally as the shorts run for cover today but we'll see how long it lasts against incoming data and pending earnings reports. That will give us a much better picture of what to expect from this brand new year.

Click on this link to try Phil's Stock World FREE! 

 


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Wed, 01/02/2013 - 23:42 | Link to Comment Trader-Scholar
Trader-Scholar's picture

Can somebody explain to me how an investor can make enough money to pay the bills with a hedged virtual portfolio?

 

 

 

Wed, 01/02/2013 - 20:56 | Link to Comment NoTTD
NoTTD's picture

"Obama  is cutting the out of control spendng"?  What planet are you on?  I worry about those of you so enamored of him that you credit him while he does nothing, while attacking his supposed enemies  ( "of GOP hard-liners who are willing to throw this country into chaos rather than allow their precious contributors to suffer tax increases"), when they are all equally responsible.  Grow up.  

Wed, 01/02/2013 - 20:58 | Link to Comment NoTTD
NoTTD's picture

Sorry, I meant to say "Grow the fuck up."

Wed, 01/02/2013 - 18:56 | Link to Comment Chartist
Chartist's picture

Does anyone else notice that Janjuah, Rogers and Faber, aka the super bears, have not said a freaking word?  I suspect they don't want to reverse themselves in public but are quietly going all in long this market......Also, the monthly charts on Dow, Dupont and PH show symmetrical triangle breakouts....

Wed, 01/02/2013 - 20:24 | Link to Comment gsh1976
gsh1976's picture

Why should Janjuah be saying a word when he predicted this?  From his 11/13/12 note:

If I look out 3-6 months I am open to the idea of one last parabolic spike higher in risk-on markets in this interim timeframe. I think we will eventually get fiscal and debt ceiling fudges in the US. Of course long-term credible solutions are needed, but are the most unlikely outcome.

Instead we may well be ‘forced’ to celebrate another round of horrible fudges which DO have a consequence. Namely, that the private sector continues to ignore Bernanke and the Washington elite (who between them continue to enjoy printing significant sums of money and/or spending way beyond their means) by instead doing the exact opposite, which means holding onto/building cash and savings, delaying spending/investment/hiring and thus hurting growth.

Markets will I think worry about these negative consequences eventually, but in the interim the knee jerk reaction of markets to fiscal/debt ceiling fudges will likely be positive.

Wed, 01/02/2013 - 18:41 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

BTFD!

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