WASHINGTON, February 27, 2013 — Relevant or not, the media has been furiously trumpeting the Obama administration’s sequester scaremongering playbook. So far, here are the key terrible things that could happen if Congress doesn’t follow, to the letter, the dictates of The One: Federal workers will be furloughed for 7 days or more and might qualify for unemployment comp, with the sticky wicket of back pay left up to Congress; fewer people than usual are putting homes on the market (despite increasing home sales and prices up 8% January over January; immigration and customs will be forced to release illegals because it costs too much to hold them; ditto, prisoner releases; shipbuilding will come to a halt; and oh, yes, even Social Security checks might be at risk, particularly if you have some kind of issue with yours.
The scaremongering reminds us of what happens on occasion in Texas and elsewhere when school districts are threatened with budget cuts. Oooo, say teachers and administrators. These “deep” cuts might just force us to close down the boys’ football program. Bang. Taxes get raised, bonds get sold, spending goes up. And the boys’ football program is saved. But not really. They would never have cut it anyway.
When forced to face budget cuts, politicians instinctively don’t ever want to cut anything. Doing so might threaten redistributive payments to each politician’s special interest supporters. So politicians go on offense against their own constituents, threatening to slash or eliminate programs or activities that benefit the majority of these constituents or programs that are dearly beloved by the local populace. Doing so will create a predictable backlash in support of the spending, and taxes and spending will go up without much hindrance.
The Federal government could easily enact billions dollars’ worth of cuts without any pain at all save for the thousands of unnecessary bureaucrats whose jobs, salaries, and benefits would get sliced from the Federal payroll. But oh, no, we’ll have to cut the armed forces in half, eliminate unemployment benefits, cut Social Security, and throw grandma over the cliff to save money for Obamacare.
They’re a bunch of scoundrels on both sides of the aisle and at 1600 Pennsylvania Avenue, that’s for sure. And that’s why most voters are tuning this garbage out. And, in point of fact, they’d love to see thousands of overpaid bureaucrats and contractors in Washington lose their cushy jobs, if only for a few weeks, just so these phony elites could feel what most of the rest of the country has been feeling since 2008: fear, confusion, neglect, and growing anger at their collective powerlessness.
Which, in turn, is why the sequester, while trumpeted by the government supported media propaganda machine, is increasingly being tuned out not only by the electorate, which is sick of all the nonsense they can no longer understand, but by Wall Street as well.
The current craziness in the market is not the result of the sequester threat which will become reality in just a couple of days now. Rather, it’s being driven by the antics of the Italian electorate, which doesn’t want to end its profligate ways; and the exhaustion of the stock market itself, which has gone too high too fast and needs to take a rest, which it tends to do in unpleasant ways as we’ve recently seen.
Meanwhile, we should be carefully watching the men (and women) behind the curtain in Washington and New York. If we’re not more careful this time around, they’ll be helping themselves to the rest of our money that they haven’t already taken to feather the nests of their families and friends. Their brains are of the same approximate size of Homer Simpson’s brain pictured above. We should try to remember this the next time we vote.
This morning’s market barometer:
After an uncertain start, the market is trying to rally again, with the main driver being current good news in sales of new and existing homes, even though this seems to run counter-trend to poor sales reports from Wal-Mart (WMT) and Lowe’s (LOW). What’s really going on, we think, is a disturbing macro-trend whereby American companies are continuing to thrive and prosper on lower and lower sales, boosted first by increasing efficiencies that have allowed them to permanently downsize employee counts; and boosted further still by fulltime to part-time cutbacks in employee hours by many companies to either reduce or eliminate the looming massive destruction of the coming Obamacare diktats.
Thus, companies that can deliver the goods with the least employees and the least overhead are likely to continue to do well in this increasingly unreal rich-poor economy.
Best bet for remaining invested is to stick with companies dealing in absolute necessities that also offer an above-average dividend payout, which, as we’ve been preaching, include REITs, MLPs, and utilities, plus select preferred stocks and the preferred stock ETF (PFF).
We actually dumped a few MLPs from our portfolio yesterday, notably MarkWest (MKW) Energy Partners, simply because they’ve been under pressure and we decided to take profits before the HFTs took them for us and from us. Ditto a few REITs, most notably Two Harbors (TWO). We plan to get back into these when some of the current corrective excess is wrung out, likely fairly soon.
We’ve pulled back from foreign stock ETFs, although the Japan ETF (EWJ) may still be worth a short play, given that they’re debasing their currency (the yen) at a rapid clip, lowering the cost of goods sold abroad and likely giving at least a temporary boost to their decades-long brooding economy.
Any investment here, however, may be of short duration, as we’re still pretty close to an intermediate term top, in spite of being technically short-term oversold. So whatever you do, be nimble, be quick.
We also added to our position in First Energy (FE) yesterday near the close. The stock was hit hard for a variety of reasons, most of them trivial in our book. The stock is flirting with its two-year bottom and is likely to hold at that point ($35-39 per share), so we’re just accumulating every time we get a meaningful drop. With a secure dividend approaching 6%, what’s not to like, long term. Short term, though, could be disappointing, except for that dividend of course.
Collectively, our portfolios are now about 40% cash, and that portion is likely to increase. We don’t trust the elites, the bankers, the HFTs, and the politicians not to steal from us again, so any time we get a decent profit, we take it. Letting things ride too long like you used to be able to will almost invariably lead to losing it all in this market.
That’s it for today. As we go into the end of the month, watch for false moves and window dressing. The first trading day of March (Friday) could tell a different story.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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