WASHINGTON, December 16, 2013 – Wall Street traders are coming out of their foxholes this morning. And by Jove, they look like they’re ready to trade, even as those oracular financial media blow-dries and pet interview subjects warn us all of impending catastrophe.
Their general mantra of those TV poseurs we imagine to be Wall Street intelligentsia reminds one of a PR trailer for a Grade B horror flick: “Be afraid! Be very afraid!” These overpaid media lemmings, like many investors and hedges, are fixated on the Fed’s on-again, off-again threat to “taper” their highly stimulative bond-buying program. It’s the flavor of the week.
Unfortunately, as with Hamlet’s unproductive dithering, the gradual windup of the Fed’s virtual money printing activities will probably result in unpredictable surprises. But that won’t keep the punditocracy away from scaring the bejeebers out of the dwindling cadre of individual investors still trying their luck with stocks.
In reality, the market is behaving as it often does in December. You tend to get a year-end, “Santa Claus Rally” punctuated by at least one scary downdraft.
What’s really going on here is the usual agglomeration of end-of-year shenanigans by hedge funds, mutual funds, professional traders and, in recent years, those nefarious, headline-driven HFTs. If you’ve taken a fat loss on a bad bet, you sell it before year-end for the tax loss, partially to cover some of your profits and partially to reduce reportable capital gains.
If you’re a fund of some kind, you jettison obvious losers and jam into the portfolio the quarter’s or the year’s winners at any price so all you need to show investors in their next quarterly statement is the winners not the losers. Of course, they never tell you when they bought or sold. This is illegal “window dressing” that our soak-the-rich government never bothers to punish.
A lot of the tax-loss selling nonsense was carried on in November, but a good chunk of it went on last week as well, punctuated by the occasional short-squeeze which gave us nice up days in the process.
But what is likely to commence very soon, taper-talk or no, is sneaky investing in what we’ve always known as “year-end bounce back” stocks—stocks that have in many cases been unjustly hammered but are set to provide snapback gains in early January 2014 trading. We’ll have our list of candidates for you shortly. In any event, when this kind of buying gets heavy, it influences averages to the upside, which would keep the rally going.
Obviously, any number of things could upend the rest of 2013’s Santa Claus rally. North Korea could nuke Seattle, the Chicoms could claim the entire Pacific as a no-fly zone, and President Obama could switch to the Republican Party. Barring unforeseen happenings, however, and barring a really negative report from the Fed this Wednesday, after a few blips and dives, the market should end 2013 on a positive note. We think. So what should we do?
Today’s investment tip
The Maven is currently underwater on his holdings in GT Advanced Technologies (GTAT), bought on a recent secondary offering and discussed in a recent column. This is the firm that’s recently signed an extensive pact with Apple that’s likely to assure the mega-device maker an uninterrupted supply of domestically manufactured, highly break-resistant sapphire iPhone and iPad film and/or screens for future portable devices.
That, in turn, yokes GTAT to Apple’s likely success curve as it sells more and more of these devices after roughly a year of the larger company’s slightly disappointing figures and stock price. Given that GTAT actually dropped on the secondary—essentially, an IPO-like offering of stock in a company that’s already publicly traded—we’re down on the deal, but are thinking of doubling down on what’s likely, at least to us, to be a good play beginning in 2014 since we suspect that sometime in the second half, we’ll begin to see the introduction of at least sapphire-coated screens in at least some of Apple’s portable devices.
Other possible bets this week: REM—an ETF that encompasses a number of high-dividend REITs—seems to be on sale, assuming we’ve seen most of the end of year-end tax-loss selling in one of the big losing sectors of 2013. We think this is likely to be one of our bounce back candidates for 2014, as the whole sector is grossly oversold even on a worst-case basis. By picking up some shares of REM now, we could catch that presumed bounce in early 2014 while lining up to collect a swell yield throughout the year if we hold—assuming dividends don’t drop too precipitously next year.
An added plus here is the fact that via this REIT, you don’t have to deal with the huge and confusing amount of paperwork you get from individual REITs—almost always AFTER April 15—that you’ll need to fill out the following year’s tax returns.
That’s it for today. We’ll feel more comfortable talking about individual investments after the Fed’s supposedly earth-shattering announcements this coming Wednesday, December 18. And remember: nothing that we recommend or dis-recommend is ever guaranteed, not even for us.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. Positions mentioned above describe this author’s own investment ideas and decisions and should not be construed as either buy or sell recommendations.
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