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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The Tea Party Patriots would like to inform Conservative America that we will continue standing our ground. We will not submit to a Socialist Government.
We will continue to improve the Republican Party and encourage them to support Conservative Values.
The Tea Party Patriots' mission is to restore America's founding principles of Fiscal Responsibility, Constitutionally Limited Government and Free Markets.
Today I ran across two LEECHES in the parking lot.
I picked up one and held it close to my ear. It said "I'm injured and can't work.....please feed me"
I placed it back on the pavement and then picked up the other LEECH... This one was fat and much larger that the first. I held it close to my ear and it said "You and the other LEECH must feed me because I'm a job creator"
I placed that one back on the pavement and stomped it with my foot and fed the little one with the big ones body.
I just spoke to a group of Hostess employees. They are angry and demoralized. Maybe China can
start a company replacing the Ho Ho's destryed by the Obama serving union Ho's who are more interested in power and prestige than the welfare of the workers they represent.
+++CUTTING SPENDING AND LOWERING TAX RATES=====
Yes the Obama plan.
==ENTITLEMENTS - You are not entitled to anyone's effort or resources. You are only guaranteed to die.==
When you freaks use this term entitlements please identify what they are. Are you saying a person who works their whole life and pays into SS or medicare doesn't deserve it . are you also saying a veteran is not entitled to any benefits?
I would like to hear a Republican solution for health care problems. Because the current system sure is heck isn't working. It's not a free market system... I have no idea why it's defended as if it is. The market doesn't set prices, insurance caps set by for profit companies do. It's probably the most inefficeint system there is. I'm not a fan of all of Obamacare but it can't be worse that what we're currently doing.
So tell me, what is the Republican solution to the problem?
How many of you progressives are ready to handle the economic blowback from abolishing corporate personhood for all institutions? Suddenly, all business people and others would have to operate with many times the responsibility and accountability they do now. The self regulatory effects of that would dwarf all the connived and corrupt regulations we have today.
Benghazi Gate will sink Obama and his followers........they are criminals
this is not an accusation, it is a fact that 4 people are dead and no one is accountable
in this supposedly transparent administration
Poor US...we are between Greece, Lybia, Iran, Iraq, Afghanistan, Israel, Palestine, Pakistan, China and North Korea and let's not forget to go to a wine tasting in Australia...........
MILITARY - If Europe, Israel or anyone else wants protection and/or liberty, they should pay for it (with their own blood if necessary).
ENTITLEMENTS - You are not entitled to anyone's effort or resources. You are only guaranteed to die.
INFRASTRUCTURE - You use it, you pay a toll (and that system is easier than ever now).
DISASTER RELIEF - Let the states handle it and THINK before you build, buy, rent or otherwise put your tent there. Give the Churches and secular charities something to do besides worrying about abortion and meaningless cultural/race issues.
Um...Greece isn't even mentioned here, that already there are riots, and the Gov't is advising americans over there to watch out for violence.
This is all going to boil over the sides, and the end results arent' going to be pretty.
A dis-satisfied customer and voter...
The government, by nature, is and always will be a willing tool for providing protection for big business and the political class from labor, small business and entrepreneurs. The stupid Democrats, establishment Republicans, and most of the public running in fear for their ill informed retirement plans all got behind Bush's "Abandon the Free Market in order to Save It". Now the clueless public (TWIT) cries for their "fair share".
Maybe the next time the firm of Adam Smith & Darwin comes calling, the electorate will chain their representatives and let them do there jobs.
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