Wednesday 26 December 2012

Lump Of Coal?

This is the time of the year when volume is next to nothing and a yearend rally is all but assured. And yet, two trading days in a row SPX closed in Red.  Whatever happened to the Santa Rally? The all powerful man of USA cut short his holiday to solve the mess, which is his mess as well but the market just gave a big yawn. Some other time, SPX would have rallied 2% just on the news that President of USA has shown some urgency, but not today. So, is Santa going give a lump of coal to Wall St. for the New Year Gift?

Whatever happens with respect to the fiscal cliff, taxes are going to go up and spending will get curbed somewhere. None of that can be good in normal circumstances but coming in at a time when USA is just barely muddling along; the drag on GDP could be substantial. And yet, there is not much panic anywhere. Is this complacency? Or just the liquidity of QE infinity propping up the market?

The headlines after the market closed was: U.S. Stocks Fall as Retailers Slump Amid Budget Deadline.

 This is as moronic as it gets but the buzz is that the holiday sales were not as good as expected. So is the American consumers have stopped spending money that they don’t have on stuff that they don’t need? If that is so, what will happen to Chinese factories producing all those worthless junks that we find in Wal-Mart? Will all the folks in Africa and Bangladesh now buy up the entire excess inventory that every country on earth is trying to export and prosper? Somehow the math does not add up.  

It is too early to write off the American Consumers, more so when the Govt. actively encourages you not to save but borrow and spend. Well, sometimes in future they will go bankrupt along with the Govt. but by then it will be someone else’s headache. Most likely the Chinese and Japanese will be left holding the bag of crap bonds that the Fed has been able to sell. There are only two options for USA. Either become like Japan with a 20 year deflation and 200+ % of debt to GDP or become like Zimbabwe with super high inflation.  The Fed’s balance sheet will balloon to over $ 4 trillion by end of 2013 and they have no exit strategy. USA has over $ 16 trillion in debt and they are talking about reducing $ 1 trillion over 10 years. I still do not get it. While I am very sure about how it will end, I am not sure about the time and I think there is still some time to play on the long side and the end of the world scenario that everyone talks about, is still far away.

In this game, timing is everything. If we are too early we will lose our capital. So we will try to make money in both long and short trades / investments and we will be open to all other asset classes including commodities and bonds and not just equities. We just have to remember that “Return of Capital” is more important now than “Return on Capital”. We should never front run and never take undue risk for big returns. That is called “Greed” and greed kills.

We therefore continue to wait for opportunities and be patient with our investing / trading. And I see some interesting opportunities coming up soon which I will 1st share with the subscribers. Thanks for signing up during the holidays. I know, many of you would be travelling and be on vacation at this time of the year and that is why I am putting out the reminders regularly. Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

Thank you for your time to read this blog post out of your busy schedule. I hope you have had a great Christmas and having a great time with your family and friends. I look forward to your feedback and comments. Happy holidays folks. 

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