Trickle Down Tuesday – Markets Pull a Slow Fade into Holiday

 

SPY 5 MINUTEGoing down!  

 
 
 
 

You can’t draw any conclusions from these low-volume trading days but, in general, stocks have been in retreat and this morning the news of Turkey shooting down a Russian jet fighter did not help the mood one bit as European markets dove 1.5% and our Futures followed down half a point (so far).  

 
 
 
 

I already sent out a News Alert to our Members and, if you follow us on Twitter, you already saw it – so I won’t go over all the details and possible repercussions again.  Needless to say World War III would be kind of a bummer so let’s hope things don’t escalate.  Fortunately, Vladimir Putin is well known for his diplomatic restraint.

 
 
 
 

The US State Department has already issued a Global Travel Alert that’s likely to put a damper on holiday cheer this year.  Paris is already seeing a slump as airline bookings into the city are down 13% – enough to put a serious dent in the travel industry’s bottom line.  I was in NYC this weekend and my children got to see heavily armed police hanging out in Times Square and it was way too easy to get stand-by show tickets on Sunday (but we knew it would be, that’s why we decided to go).  Buffett’s admonition to “be greedy when others are fearful” applies to more than just stocks…

 
 
 
 

Brussells has become a complete ghost town as the Government there is hunting for terrorists in the capital – not even the subways are running as the ECB must be protected at all costs, of course.  It is in this environment, amazingly, that I have gotten tons of messages and comments in the past week telling me I’m too bearish and the markets will fly on the biggest Santa Claus Rally of all time.  It really does scare me that so many investors believe in Santa Claus, not to mention the Fed.  

 
 
 
 

 
 
 
 

I’m tired of explaining why I’m more comfortable being in CASH!!! into the end of 2015 but David Stockman isn’t, so you can hear his interview where he makes the case that the Fed is very close to losing control – along with all the other Central Banksters who are doing little more than enabling the Global Economy to get up only long enough to stumble off a cliff.  According to Stockman:   

 
 
 
 
 
 

 

 
 
 
 
 
 

 

 
 
 
 
 

“No one really knows.  That’s the problem.  We are in such uncharted waters.  None of this has ever been tried before.  None of this is sustainable.  It defies every law of common sense and sound economics and finance.  Therefore, you are building up a larger and larger combustible element in the system that sooner or later will blow.

 
 
 
 

This is the final spasm of a dying bull market that has been entirely fueled by central bank money printing.  But if you look at the underlying trends both in the domestic and in the global economy and the outlook for earnings, everything that matters is heading south and the real global recessionary forces are just getting started.”

 
 
 
 
 

Hey, maybe he’s wrong!  I’m certainly not making any major short bets on the market – it’s just that I simply don’t trust it enough at these levels to be a buyer so I’m sticking to CASH!!!, which happens to be up 5% since mid-October.  Having lots of Dollars is itself a bet and we are betting that the Fed tightening while Europe and Japan are still loose will boost the Dollar a bit further and THEN we will convert our valuable Dollars into low-cost stock certificates and, of course, beaten-down commodities.  That’s a perfectly valid strategy but it first requires getting to CASH!!!  

 
 
 
 

As I mentioned last week, when they were even cheaper, we’re long on gold at $1,070, we’re long on silver at $14, we’re long on oil at $40 and gasoline at $1.275 (see Friday’s morning post for how you could have made thousands already with our Futures trade ideas) and we’re long on UGA (Natural Gas ETF) at $28.75 and even that is up $1 (5%) in two days – you are very, very welcome!

 
 
 
 
 

Making 5% in two days is the kind of thing we can do when we have CASH!!! on the side and are not sitting around fretting over all the positions we’re stuck in.  It amazes me how resistant people are to the idea of having cash in their accounts – as if cash isn’t a valid asset class in and of itself...

 
 
 
 
 

8:30 Update:  We got our revised GDP numbers for Q3 and they’ve been revised higher to 2.1% (from 1.5%).  Of course good news may be bad news as it locks in a Fed hike in 3 weeks.  Also, if you look below the headline, this GDP report has been revised up for all the wrong reasons as Personal Consumption has been revised DOWN from 3.2% to 3% while it was a big $40.4Bn upward revision to inventories (unsold stuff) that more than made up for the difference.  

 
 
 
 

 
 
 
 

Notice how Exports have almost disappeared and the last time inventories were such a factor was Q1 of 2014, when the market plunged from 1,850 to 1,737 (6%) on January earnings.  So far, this quarter, we have ignored all these issues in hopes that the Fed will ease and the Free Money will keep flowing but wasn’t the Fed easing in 2014 and wasn’t the Free Money flowing then as well?  

 
 
 
 

2.1% is weak by any measure but especially so when the Fed is still dumping $60Bn a month into the economy (such as it is).  $720Bn a year is about 5% of our GDP coming from the Fed and our net growth is 2.1% – does that feel healthy to you?  It certainly isn’t doing the S&P 500 any good as earnings have fallen by $25Bn in the first 3 quarters of this year and, listening to their guidance – we ain’t heard nothin’ yet!  

 
 
 
 

 
 
 
 

So BUYBUYBUY if it makes you happy – we already SOLDSOLDSOLD into the rally and now we’re enjoying our holidays and watching the fun from the sidelines – ready to swoop in and pick up bargains but certainly not in any great hurry to do so.  If history has taught us anything in the markets – it’s that patience is ultimately rewarded.  

 
 
 
 

 

 

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