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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So, what does this mean - we are a powerhouse of an economy with expenses within reason. Let's keep spending reasonable - but spending cuts alone won't do it. We need to raise revenue. No one wants to raise taxes but it must be part of the picture in a way that will not bring our economy to a halt. Short term capital gains taxes must be part of the picture encouraging long term investing. Penalties for off shore investing must also be considered. Simple solutions are usually wrong.
In 2006, I switched jobs and took out my old 401K. Sure I got hit with taxes and penalties, but the money wasn't growing very fast anyway. We put 60K into Rental Properties. We bought 4 side-by-side duplexes with just 10% down and financed the rest. Over the past 6 years, we used the rent payments to completely payoff the second mortgages and are now in a position to refinance the primaries. We turned that 60K initial investment into just over 150K. Keep in mind, that's even with the real-estate market in the mess it has been. Now with lower interest rates on the newly refinanced Primary mortgages, we can continue to pay those down at an accelerated rate. Once we have them free and clear, I'm going to retire about 10 years early. That's WAY better than either my old or new 401K have been doing.
Here's a website you can go to to sign a petition to temporarily suspend the rights of anyone on welfare from voting. h-t-t-p :// wh.gov/XkQZ
Pass it along to others!
Sorry if this was a duplicate, the first post went in as a reply to another one.
well America you voted for that bastard obama, again, and talking 'bout economic "cliffs" and "uncertainty" and CHina's woes and volatility bullshiiit is moot at this point, you've had your chance at economic rebounding, the disaster that obamacare is and will become will be worse than any economist calculated, the shear trillions it'll add to an already stratospheric debt is something I don't even want to think 'bout it, but instead you chose the Welfare Pimp himself osama, the democrapic "Party of Handouts" who belive the successful should be "punished" for being a success.
Mitt Romney would turn this nation around and bring her back from that "cliff" but now, I'm really sad to say, we're toast, finished, over and done, stick a fork in our collective asses cuz were sooooo DONE!! the new taxes coming in Jan, of course will hit, who else?? the Mid Class, as always!! the "poor" and mostly the chronically "I don't wanna work cuz I"m entitled to handouts" crowd will slam dunk us into more horrific debt, until the inevitable happens the entire nation goes belly up and bankrupt, the productive minority can't support the parasitic majority, those are just facts and you can call it racism all you want the truth is we're now nothing more than a welfare state, a 3rd rate banana republic,
you parasites think obama can really "hurt" the so called "rich"??? you're really that dumb? really?? the ones that own companies will just fire enough people to put then solidly in the "black" financially, they at worst, will make "less" but keep "more" tax wise, I mean why would I make more profit in the first place when obama's gonna give it up to lazy azzed welfare cases?? simple economics right there, so what've have you libs gained?? what?? free contraceptives?? and?? how's that fact gonna keep your mortgages current? your bottom line in the "black"?? you've gained, what??? NOTHING!!! a whole lot of NOTHING!! but more money going higher taxes, your own health care choices have been removed, out more money for gas, food, utilities, etc...
the middle east is nearing major war, it's only a matter of time and we have the worst possible president for this time in our history and the worst possible speaker of the house as well, add the pathetic marxist media to the mix and as I said before, WE'RE DONE!! and we have in fact LOST THE COUNTRY, it is now time to panic people, and I say this with an extremely heavy heart, but it is, in fact time to panic!
To: evil chris
First off you are wrong on so many levels ,first article 47 each state that succeeds from the union has control over all said armed forces and state ran federal buildings . The state will control the armed forces under the governors powers act article 17 signed by the white house . This would be same act signed by all states in 1886, it gives direct control of any said armies to a governor of that said state in the act of succession. That said state will keep all its funds they already collect and they would be better off because most states collect just for taxes almost 2 to 1 . The states that choose to leave will do so for example texas moves out of the union .You would see gas at 15 dollar's a gallon why is that because texas refines 80% of the gas we use .All the oil reserves are here that 1.7 trillion barrels of oil would belong to texas . nobody gets a say on that one because big 5 oil is here and they put that 1.7 trillion barrels into play so that the us would have a reserves .Texas being the 15th largest economy in the world we would do just fine .
Buffett has repeatedly criticized gold investors as people who dig something valuable out of the ground and then effectively save by burying it again. It does sound a bit silly, I agree. That is, until you realize every alternative provided to retail investors by Wall Street and the government are even more ridiculous; starting with 30 year bonds that have a negative 30 year interest rate. When gold is among the best investment options out there, as it is today, the truth of Buffett’s argument now stands as a glaring example of just how bad our monetary and financial system has become.
3. Payroll taxes
4. One size fits all medical
5. No relief from litigation
Between a rock and a hard spot
The United States federal government will spend 3.8 trillion in 2012; it will take in 2.5 trillion, which leave a debt of 1.3 trillion. To balance this budget Americans will have to raise taxes by 50% or cut spending by 35%, or a combination of the two. Plus we must start making payments on our 17 trillion dollar federal debt. If we raise tax sufficiently to reduce the 2012 debt, the American people will revolt. Congress will not cut spending by 35% because they will have to cut the programs of the vested interest groups that keep them in power. If we don’t start paying on the federal debt lenders will question whether we are going to pay our debts, and interest rate will increase as the risk of not getting paid rises. If interest rate on treasuries goes to 5%, it will add another 650 billion to our federal budget. On top of this the federal government has about 147 trillion in unfunded liabilities. With the reelection of Obama it is obvious the American people have no understanding of our economic condition. With Obama wanting a tax increase of 1.6 trillion over 10 years and congresses wellness to negotiate on this should tell us that our leadership doesn’t have a clue either. We are going bankrupt and there is nothing we can do about it!!!
Bankruptcy does some good things; it gets rid of the debt, it redistributes the wealth, it reevaluates the assets, gets rid of bad management and obsolete ideas and America can start over again.
Generally I respect you, but the rest of the media and go take a flying leap along with loverboy Obozo over the fiscal cliff. Maybe then the voters will see what they got.
My sign off is my investment. You know and I know that Congress will kick the can down the road barely escaping falling over the fiscal cliff. You know this fiscal drama will continue until Greece comes along and rescues us? When will that be? Never! The people in Congress don't have the balls to make any meaningful changes. They are all worried about their own self interests and don't give a rats **** about you or me.
Wake up America!
It seems nothing has change, we just finish an election, and we have to listen to Ryan the liar advancing his wonderful ideas of how handle the coming Fiscal Cliff, this guy needs to realized, Mr.Obama is President. We just herd Mr.Boehner give his talk a few days ago about the Fiscal Cliff, and other economic situations he thinks he has the answer how to it fix, as usual! The things he said that infuriated many of us much was his statement that he wishes the elections had turned out another way, we thought it was an improper remark for the Speaker of the House to make, indicating one more time his personal feelings rather than showing a professional dedication to his job, lacking the vision to work fruitfully for the citizens of the USA. He’s contending us one more time in his own personal hypocritical super bully hero attitude! He has a recurrent amnesia problem like Mr. Romney had, and seems to be having troubles learning, and accepting from the American people the facts after the election. Sir, Mr.Boehner? Are you there in the House of Representatives? We just elected Mr. Obama as your President for another four years. We all truly hope you and your followers not trying to perpetuate the same old anxious lyrics coming from the mindless abusive House of Representatives, following yours and theirs perpetual intransigency and mental aberration in insisting in no tax increase for the rich, and emphatically suggesting cutting the entitlements programs. Your wrong ideology shows all of you wanting to sink our old citizens deeper in a hole of hunger, and to miser their health care. Come to your senses, all of old citizens in Medicare have earned their Medicare after years of dutiful work, but remember as you try your dirty tricks on them one more time, as you all well known for a long time the SS is not a part in any of these talks, so make sure not to monkey with it! Keep holding back America, and fighting for the very rich, while 46 million Americans are in poverty, and I promise, we will never ever forget all of you in the House of Representatives. Be smart, work for the people that have waited over four years to overcome your permanent intransigency in helping the American people, we put you there; it’s your responsibility to the people
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