Same president, same challenges
Seems the market was surprisingly surprised by Obama's win. With that uncertainty out of the way, the market's near-term course should become clearer.
Though President Barack Obama had been reported leading in virtually all the polls for some time, it would seem that the stock market had not been handicapping him as the winner, given that the market gapped aggressively lower on Wednesday in the wake of his victory. In fact, it took less than two hours for the market to shed just under 3%.
For those folks who had correctly expected this election outcome, you might have been scratching your head at how the market managed to hold together leading up to an election that was likely to result in dividend and capital-gains tax rate hikes, in addition to the fiscal cliff.
Of course, we don't know for sure that we will go over the cliff, as the can may get kicked down the road. But certainly from an economic perspective, there is not much chance that the next couple of years are going to be very different from the last four, i.e., pretty subpar from a gross-domestic-product and job-generation standpoint.
Thus, it will be up to low interest rates to keep some sort of a bid in the equity market.
I know that the hypnotized never lie
Now that the election is over and the market faces the reality of discounting those outcomes, the near-term direction of the market may be clearer and lower.
My recent strategy has been to short S&P futures, which I have done a couple of times for some brief trades. (Given that we have so many crosscurrents, holding any speculative position for very long is difficult and potentially dangerous, and not an advisable strategy for amateur investors to employ. And for the record, for me precious metals are not a speculative position, as that is a sector I have been involved in -- and expect to be involved in -- for some time.)
As regular readers know, I expect at some point the bond market will revolt, and though it is hard to say when, I was somewhat intrigued to hear on Tuesday night that a decent chunk of respondents to exit polls thought rising prices were our No. 1 problem. This is decidedly not what one would expect in the midst of a supposed deflationary period.
I have noted many times that declining prices in certain asset classes (such as real estate, which has stabilized for various price points and locales) is not deflation, so there is no point in rehashing all of that. And in the meantime, now that we have gotten our election out of the way, we can turn our attention to what the new leadership in China looks like, and what sort of stimulus programs its new leaders might have up their sleeves.
And from our à la carte menu, Apple turnover surprise
Speaking of tricks up one's sleeve, I am probably going to shock a few folks, but I decided to buy some near-dated Apple (AAPL) calls early this week (even though, as I said in a recent column, I think Apple's stock price has most likely peaked) after talking to Fred Hickey and reading his newsletter last weekend. (As an aside, if you have not subscribed to The High-Tech Strategist, I cannot recommend it more highly.)
As anyone who has read Hickey's most recent report knows, it is very likely that Apple will have an extremely strong quarter, yet, meanwhile, the stock has been in the penalty box. Thus, this is a bit of a contrary trade, and again, it is not a recommended course for most individual investors. But it will give me a bit of exposure to Apple's upside if the market decides it wants to rally in the wake of the election. The reason I chose to buy the calls, which expire before this column will be posted, is that I can limit my risk to a few dollars while Apple itself can swing wildly.
While it is very important to have conviction in your investment strategies, it is sometimes even more important to be flexible in your thinking. This trade on my part is certainly an example of that, as well as being contrary, given the recent performance of Apple's stock price.
S&P does not support this message
I was curious to see how the 1,400 level would hold on the Standard & Poor's 500 Index ($INX) following the election, as that appeared to be a floor recently. But the first time the Spooz (S&P futures market) traded down to that level during Wednesday's session, it punched through it to 1,385 before bouncing. Meanwhile, the chart of the Nasdaq ($COMPX) looks even worse, as that index is now not only below its 200-day moving average, but gapped through it on Wednesday.
This sort of action is precisely the reason I was willing to squander only a few dollars on my Apple calls, which were basically a way to participate on the upside should the market have decided to rally in the wake of a victory for Mitt Romney.
At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column.
bill you are such an idiot and conservative shill at times. EVERYONE with even half of a brain knows that the sell-off was due to the 50/50 popular vote split along with retaining control of the House and increasing the number of republican governors. that lack of a clear mandate will fuel the extremi sts in the House and allow them to cling to their borderline-tr easonous pledge to the lob byist never to compromise or raise taxes - ever.
back to the same old gridlock, bickering and fiscal terrorism of the past two years ....
how do you type at a screen with your nose growing a foot a minute?
If they don't like it, just quit or take a salary cut. After all, they are not contributing any more than the heroes working on the Foxconn production line.
I just need to know (in advance) when that policy and legislation kicks in. I expatriate, mortgage everything, buy long dated Apple PUTS and clean up.
All that remains is me laughing and my middle finger to the U.S. progressives.
This health care is a simple fix. Everyone pays into a pool every paycheck. Based on your salary, you pay 2,3,4,5 dollars every week or two weeks that goes directly into a American HealthCare Tax. Leave the businesses out of it and let the American workers pay into it. Even people who collect an unemployment check would pay 2 bucks a week.
With 100 million workers, you would generate almost a billion dollars a month.
Done. Have a nice day and "don't forget to tip your waitress on the way out."
Wonder who Obama will blame when his next four years are up. After 8 failed years in office, beating on Bush will be have been beat to death. It'll be all his fault.
The next 4 years will be slightly different from the last 4 because the Republicans blew it last summer.
All the President has to do now is make damn sure that the Republicans are on the record against tax increases and the he can let the Bush tax cuts expire and spending cuts occur on Jan 1 2013 with the peace offering of reinstating tax cuts for the middle class if the spending cuts are renegotiated. The Republicans can't hold out for reinstating all the tax cuts or they'll being shooting themselves in the butt
Next the President can offer to modify Medicare and Social Security eligibility by increasing age by 1 year over the next 12 years for people under 55 years of age. Finally, we'll be out of Middel East wars by 2014 and hell will freeze over or 2016 will occur before we get into another one.
Get ready to pay increased taxes on capital gains and dividends and be out of the market by 2014 when the Republicans take over and interest rates start to go way up.
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
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Stocks traded with slim losses until this afternoon's FOMC Statement and subsequent comments from Chairman Bernanke sent equities and Treasuries to their lows while also providing a significant boost to the dollar.
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