11/15/2012 10:45 PM ET|
Clock is ticking on 3 year-end crises
Europe's mess, the US fiscal cliff and China's economy will produce plenty of volatility as 2012 winds to a close. Here's what I expect, and how to take advantage of the uncertainty.
So many moving parts for the end of 2012: China's economic acceleration (maybe), Europe's economic deceleration and continuing debt crisis (certainly) and the U.S. "fiscal cliff" and stubbornly slow economic recovery.
Each by itself could change the direction of the financial markets.
In combination they could cancel each other out or multiply their individual powers.
I think we're likely to see lots of volatility -- much of it to the downside. Days that have the smell of investor panic -- like Wednesday, when nine stocks fell for every one that rose on the New York Stock Exchange. And we'll see swings from endless worry (like now) to unjustified optimism (give it two weeks).
Let me share a strategy for navigating your way through this maelstrom, and a crisis-by-crisis timeline.
Ready to move
The strategy (or maybe strategies) I'm trying to follow in this period is one I've advocated before as a way to deal with the extraordinary volatility that comes with the market these days. It builds on the idea of opportunity costs. And it involves selling stocks that look as if they're going to need more than six months to see their upside.
I may like these stocks for the long run, but the opportunity cost of sitting in dead money is too high. That's because I'd like to have some cash so that if a great stock I've had my eye on for months (or years) suddenly gets cheap, I'll be able to buy it. During this period, I'd like to raise my cash for those opportunities not by selling my strongest stocks -- that's always a temptation during periods of volatility, when the strongest stocks are the only ones you can sell without a big loss -- but by selling those where the potential payoff is furthest away.
What stocks do I want to buy? Those few that never seem to go down, except when the market is really, really in a downtrend. (Take a look at a chart of Middleby (MIDD) since August to see what I mean.) Stocks that have been knocked down so far in a selling swing that they're now bargains on even near-term prospects. Stocks that could break big to the upside in early 2013 if -- as I think likely -- growth in China and in the United States turns out to be not exactly strong, but stronger than expected.
Yes, those are ideas that I've recommended before (along with the idea of buying dividend stocks if volatility knocks down the price enough to produce a 5% yield). And they've worked in other periods of volatility this year. Wash, rinse, spin, repeat.
In this column, I'm going to lay out my best guess at timetables for the three big macroeconomic, market-moving events -- and suggest how they might fit together. The goal is to give you a road map to the news that will drive market emotions. And then I'll give specific examples to give you an idea of what to pursue and what to shed during this end-of-the year mayhem.
Let's begin with what I call my "timeline to disaster."
You can start with any event you chose. Me? I like to start with Europe.
The Europe muddle
At the Nov. 12 meeting of European finance ministers, Greece didn't get the 31.5 billion euros ($40.3 billion U.S.) it needs to keep the lights on and the banks open after the first week of December. The finance ministers will meet to try again on Nov. 20.
What's likely? Greece will muddle through until then, and at that meeting Greece will get its funding. But the International Monetary Fund on the one side and the European Central Bank and the European Commission on the other will not bridge their differences about extending the deadline for Greece to reduce its debt-to-gross-domestic-product ratio to a sustainable level. That will get put off until the December meeting.
I don't have much hope for a December agreement. There's just too much baggage here; to get to a sustainable level of debt, the ECB would have to agree to write down the value of the Greek bonds it now holds. To put any formal extension into place -- to agree on what happens after Greece gets its 31.5 billion euros -- eurozone governments would have to go back to their electorates and explain why they need more euros to fund Greece with no prospect for this move marking the end of the crisis.
I think we're looking at the endgame in the Greek crisis, but no one wants to admit they're playing. The result will be one more payment to Greece -- another kick of the can down the road -- in December, and then sometime in 2013, the beginning of serious talks about letting Greece exit the eurozone while keeping it in the European economic community.
My call on a euro debt crisis timeline: Worries that Greece will have to shut its doors and that Europe won't act will keep the market on edge through a deal (totally inadequate as it might be) at the end of November. Then elation at a deal (any deal) in December, and then in the early part of 2013, the return of fear as the deal is seen as inadequate.
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We are all being manipulated by the media and the federal government.Their agenda is control,plain and simple. The collapse of the economy is part of the overall plan for them to be "our" savoirs. I will be cashing out the wifes 401k just after the new year as I can't take the income hit this year.
I love my country,but fear my government,like never before.
In Canada the province of Quebec had two votes to separate from Canada, both times (one in the 70's and one in the 90's) failed. In one of my previous posts below I list some things to think about when succeeding. I think the effort you guys put into the seccession arguement would be better used on the effort to end coruption in the USA. It can be a great country again, still kind of is.
Succeed from the Union...... before you do here are a few things to think about
1. you won't just walk away no strings attached.
2. you were X % of the population so on your way out you can pay X % of the national debt
3. every trade deal for you is null and void as they are with the USA, not a new State/country
4. The FBI, military bases, border gaurds, IRS, any and all government employees/buildings will close and anything of value moved to non succeeding states
5. Any and all Federal money/programs stop, food stamps, unemployement, post office, national gaurd, Federal crime agencies, tax collection, environmental agencies, money for roads, grants or help during a disaster are all gone.
6. You will be responsible for which ever services you choose to carry on with and will have to collect the taxes to pay for them yourself.
7. Good luck and don't let the door hit you in the **** on the way out.
Whooosh... straight over your narrow-minded head!!!! Only ONE party has signed a Pledge to prevent the other from recovering us. Throughout my posts you will see a reference to anti-Republicans not a torch for the Democratic Party. Let's get rid of clearly evident FAILURE first and then concentrate on a government that works.
If YOU want less Party bashing... STOP supporting the Far Ultra Conservative Klan Evangelist Republican Southerners pumping the thumbs count so the anarchists wallow at the bottom where they live and let's start some intelligent talk about a solid recovery plan for ALL OF US. You tell me... did you thumb up Tony Rizzo? Tell me what in his posts is intelligent? Stop your loser posting "pryk" and show me you can discuss at an adult level. All REAL answers will come from US, not Congress.
Ah the battle rages on as the cliff draws nearer.....
The word of the day is gandstanding folks.....
Both parties will look as though they are drawing lines in the sand, making this a much bigger spectical then it needs to be. It will drag on until the deadline looms. Then a last minute deal will get done and even though both sides will cave on a few things they can go back to their camps and look like heros for getting it done rather then the grandstanders they have become. It wouldn't surpise me if the deal was done already.
On a side note I believe you Yanks really need something, a credible threat to your country. I don't mean terrorists but someone like the USSR who could threaten world domination. The rise of China might be in a way a blessing as a way to get your leaders act together. It is easy to rally together to face a common enemy, to rally toegether for the common good in a time of peace, that's more complicated.
AS long as Obama & Democrats ignore the fact that they have to cut their spending, starting with entitlements, you're going to continue to see our economy slide further down. What they don't get is there are already provisions in SSA currently to help them get off government benefits without jeopardizing their cash benefits until they reach their break even point. But in order to do this they must develop & PASS A BUDGET !! How else will both sides be able to address these 'fiscal cliff' issues ?
BTW - my little spreadsheet 'parachute' is working well but as this market drops, we are losing value & opportunity for the future - time to call your congressperson to get them off of their blessed assurances!
"How true this is. Too many rich banks and international companies raping economies. Both republicans and democrats are being paid off in order to let this happen."
I like to trash talk Republicans because everyone needs a hobby and it's easy to do. That said, this isn't a political mess. Andrew Dickson White wrote his book: Fiat Money Inflation in France in the 1870s and read it to both parties in Congress in 1876. We were heading over a Fiscal Cliff then too. The book is about the economic aspects of the French Revolution. Our problem isn't political, it's mental. There is a creature out there called an Inflationist. A person who has wealth, assets and power and purposely trashes the economy to cause government to bail it. If you study the specific acts of terrorism caused by Phil Gramm (the Gramm Leach Bliley Act) and Goldman Sachs (Mark to Market credit facilitation) and George W. Bush (redesigned currency, new printing presses) and Hank Paulsen (former CEO of Goldman Sachs, then Secretary of the Treasury under Dubya and cheerleader for TARP)... you grasp who Inflationists are in America. These people cause the slow in economy, then buy the Debt Notes created when we attempt stability. It's not simple per se, but it's clear that calling all Debt Notes, Bonds and Derivatives since the enactment of Gramm Leach Bliley is our sole move for restoration of our economy. Old greedy grubbers tied to Ivy League schools when only Elitists could attend are not our friends, they are the enemy. America was built on the premise written on the Statue of Liberty... bring us your poor, your tired, your huddled masses, but the pariah came too. We are many generations into a blended society now, pure exception has to go. Time to divest the GOP and reveal those who would steer us over the edge just because they can. Sorry... but I say we put a deadline on Congress to act and remove them if they don't. We are literally living the course of the French Revolution as Andrew Dickson White chronicled it. I choose to avoid repeating it by learning from it. No one in Congress is a celebrity. No Elitist is above the Law and no Inflationist should have one dollar in wealth. Let's go, America... stop bickering and let's recover our country from corruption-- TOGETHER.
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