WASHINGTON, October 7, 2014 – Wall Street is busy climbing that proverbial Wall of Worry again today. Wise investors tell us that the Wall of Worry obsession provides investors with the best opportunity to get into stocks, as when worry is at its most intense, that’s when stocks are cheapest. But this fall’s version of the Wall of Worry has us worried.
The whole situation these days reminds us of Irish poet William Butler Yeats’ prophetic lines in “The Second Coming”:
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Penned in 1919, that 1920 poem was a dim reflection on the worldwide disaster otherwise known as World War I which, to say the least, didn’t leave the world, and particularly Europe, feeling very hopeful about the future.
Unfortunately, those who’ve been enduring the opening decades of our current century seem to be reaching the same conclusions as the civilized world contends with the current twin evils of Islamofascism on one hand and an inept response to the alarming spread of an unexpected plague on the other.
Marketwise, stocks can’t seem to find a positive catalyst as this pair of existential problems bleed into other issues like corrupt government, sclerotic bureaucracies, overwhelming greed and other assorted contemporary miseries.
That’s why we were perversely delighted this morning to catch a new book plug on that always-interesting blog aggregation column known as Instapundit. The short title of the book is “Crapitalism,” a moniker that we wish we’d thought of first, but so it goes. Penned by Jason Mattera, the book seems to be zeroing in on the root cause of much of the 21st century’s post-Jimmy Carter malaise. Amazon’s extended PR blurb seems to describe things best:
… Jason Mattera sets his sights on his next big target: crony liberals, including Al Gore, Carlos Slim, Harry Reid, and Jay Z, whose riches come at taxpayer expense.
From billionaire business tycoons like George Soros and Warren Buffett to movie industry moguls like Jeffrey Katzenberg and Stephen Spielberg, American liberals are using government breaks and shortcuts to pervert the free market. These “rich bastards” leverage crony connections to bag millions for phony “green companies” that go bust, vacuum public coffers to build glitzy stadiums, utilize little-known tax loopholes to loot $1.5 billion for Hollywood movies, and more. They use government to rig the game in their favor and leave taxpayers holding the bill.
And when government gets in the business of picking winners and losers through bailouts and tax breaks, free market competition begins to atrophy. That’s what big government leftists—and corporate Republicans-in-name-only—want to happen.
In this explosive, funny-as-hell investigative exposé, Mattera reveals the infuriating schemes that result when the filthy rich combine cronyism and capitalism. Crapitalism pulls back the curtain on a cast of cronyites who make millions taking advantage of taxpayers—and still brag about how they’re looking out for the little guy.
Wow. Sorry to say, but who needs to read the book after this punchy little synopsis? The only thing it somehow leaves out is a mention of that taxpayer-enriched redistributionist genius Elon Musk who continues to reap a fortune for his highly-unprofitable but Obama-favored solar ventures while taxpayers pick up the bill almost in its entirety.
Perhaps “crapitalism” (small “c”) is the real reason behind the Mr. Market’s continuing pessimism, as it dawns on the average investor that he’s about to become less and less average as the years go by while the aforementioned crapitalists and their wholly-owned (mostly) Democrat politicians sluice more taxpayer dollars toward charlatans who certainly don’t need them.
Tech stocks, long Wall Street’s darlings, also haven’t helped lately, with the latest bump in the road having to do with the sudden, stunning Chapter 11 filing of sapphire glass company GTAT. No sooner had the company’s CEO unloaded a batch of stock than GTAT announced its filing, instantly sending its stock (and its enthusiastic investors) straight down crapitalism’s crapper.
FYI, the CEO’s share dumpathon was allegedly legal, the exercise of a pre-agreed upon contractual option. But the precision of its timing still left a bad smell in the air, and the coincidence was perhaps a bit too pat for public consumption.
News dribbled out this morning that, for whatever reasons good or bad, Apple (AAPL) was ultimately behind the mess. Apple apparently discovered, after its big investment in a factory and equipment on GTAT’s behalf, that in some way, shape, or form, the smaller company was not yet capable of producing sapphire film and/or glass that would exceed Corning’s (GLW’s) Gorilla Glass as a less breakable alternative for the face of its new iPhones.
We’ll see how this works out. Apple apparently can take possession of the factory (which it actually owns) as well as the equipment GTAT was purchasing, so who knows? Meanwhile, GTAT’s hapless investors are screwed.
Meanwhile, all averages are way down today, over a half-a-percent across the boards as of 1 p.m. Tuesday, as stocks simply can’t catch more than a one-day break like last Friday’s before they collapse again.
Things fall apart.
Today’s trading tips
Again, we see no point in providing suggestions that have a likelihood of being wrong in excess of 50-60% in the current environment. The Maven’s own genius has been sorely tested at least since mid-summer, as increasingly, no previously reliable methods for evaluating investments can withstand the collective onslaught of the HFTs and their headline-driven trading algorithms, which are made all the more potent by regular headline shocks which can, at least in the short term, trump almost any stocks.
We are in a fairly high cash position, though not out entirely, as there are still good values around even in what looks to be a pricey market. We’re reasonably happy with a couple utilities and are slipping back into a couple of REITs, notably the surprisingly durable Two Harbors (TWO), which is diversifying in some clever ways.
But both bonds and stocks are risky right now which doesn’t leave many places to hide except money market funds, which pay next to zero. On the other hand, next to zero seems pretty nice, given some of the colossal money losers we’ve run into lately, like shares of last week’s Vivant Solar IPO (VSLR). It was priced at the bottom of its range after nearly every source we read said it was “many times oversubscribed,” meaning you’d be lucky to get any shares.
Turns out that that was likely a prosecutable lie, as, after a weak opening day of trading where the stock closed mildly up, it proceeded into a waterfall decline, smacking the Maven’s measly 100 shares down to a 25% loss. (Oddly enough, it’s up 10% so far today.)
We should have expected trouble in this issue when we got those 100 shares on a “many times oversubscribed” deal. But you go with what you have, and so it goes. Likely, investors are also still tapped out by that huge Alabama (BABA) IPO that soaked up a huge amount of cash in September. Or maybe this was God punishing the Maven for cynically investing in yet another capitalist, taxpayer supported solar company. Maybe some day St. Peter will let the Maven in on the joke.
Aside from the occasional IPO misadventure, we’re laying low although we like the banks here and are still holding our latest batch of Bank of America “A” warrants (BAC/WS/A at Schwab—your broker’s symbols may vary on this one.)
Continue to keep that powder dry, and be ready to dive into short ETFs like SH if things really get nasty.