Archive for January, 2012

Video: Romney’s Rally and the Facebook IPO

23 | By Shah Gilani

This morning, Editor Shah Gilani made an apperance on Fox Business’ “Varney & Co.” to talk about how a win for Mitt Romney in the Florida primary election Jan. 31 would affect U.S. markets. Host Stuart Varney also asked him about the Facebook IPO. The social media giant is rumored to be filing Wednesday for an IPO, but most retail investors won’t be able to get a piece of the action until the secondary market, meaning they’re locked out of profits. In this video, Shah discusses who the IPO shares will go to, what CEO Mark Zuckerberg could do to include the average investor in the profits, and what the IPO will mean for the tech industry in 2012.

To watch it now, click here…

Stone Crabs and the State of the Union

8 | By Shah Gilani

I love stone crabs. They’re delicious, expensive, and well worth it.

Maybe the real reason I love stone crabs is that only one of their claws is “harvested” (that’s the politically correct way of saying “ripped off”), so the creatures can defend themselves (from us?) while they regenerate another claw.

The best place in the world to get stone crabs is Joe’s Stone Crab on South Beach, which just happens to be on the south end of Miami Beach – imagine that.

I was planning on going there for dinner yesterday until I came across a farmer’s market (I won’t say where) and a young couple selling stone crabs for just $12 a pound (that’s why I won’t say where).

To make a long story short, I bought five pounds and cancelled my South Beach plans.

Here’s where I’m going with this… As I was cracking the claws with a hammer (nothing else works) and stuff was splattering all over my kitchen (I know, I should have used a towel, but that’s what an imminent stone crab dinner will do to you), I began thinking about the President’s State of the Union address, and the real prospects for the U.S. economy.

And it hit me. Both Republicans and Democrats are “harvesting” the remaining hopes Americans desperately claw at, and are splattering our dignity across our kitchen tables.

We’re caught in a trap. The American people are systematically being misinformed by extremist Republican and Democrat rhetoric about who’s got the better vision for America. They think that, by polarizing the nation, they can divide us into their warring camps to wage their battles to enrich themselves once they’re in office.

Just one problem.

We’re not stupid.

Are You Buying What They’re Selling?

Are you buying Newt Gingrich’s pandering to Florida’s “Space Coast?” Before this Tuesday’s primary, he channeled JFK calling for a colony on the moon in eight years, and wants us to go to Mars. Maybe he should go first. (Space exploration, yeah, very cool. But how about cooling our own planet first?)

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Why the Fed’s Actions Are Threatening Capitalism

2 | By Shah Gilani

Here it is, folks, the quote of the day (from yesterday), courtesy of Federal Reserve Board Chairman Ben “Helicopter” Bernanke:

Our ability to forecast three and four years out is obviously very limited.”

Here’s what’s really amazing about Bernanke’s frank assessment of his club’s prognostication prowess…

It came on the heels of his pronouncement – after a two-day confab of the Federal Open Market Committee for the Everlasting Future of Big Banks, Bigger Bonuses, and Rampant Speculation with Cheap Leveraged Financing for All – that’s their full name – that the Fed expects to keep short rates “near zero” (yes, that’s a “0” with several zeroes behind it) until 2014, or until Ron Paul becomes president, whichever comes first.

What’s comforting about such decisive action in the face of uncertainty (at the Fed) so many quarters and years out is that the Fed, in spite of its modesty about its remarkable forecasting facilities, is usually quite good… oh, no, not at forecasts, but at making quote-worthy prognostications.

Here are some of my favorite quotes from the current Chairman (I’d include some even more prescient calls from Benny the Jet’s predecessor, Alan Greenspan, but alas, I don’t want you to laugh so hard you start crying when you realize this isn’t funny.):

  • October 20, 2005: “House prices have risen by nearly 25% over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.”
  • February 15, 2006: “Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.”
  • March 28, 2007: “At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.”
  • November 14, 2007: “We at the Fed will have to remain exceptionally alert and flexible [emphasis added, because I can] as we continue to access how best to promote sustainable economic growth and price stability in the United States.”
  • February 14, 2008: “At present my baseline outlook involves a period of sluggish growth followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt.”

Someone should tell Benny that we’re still waiting to feel the effects of monetary and fiscal stimulus…

Keeping rates low led to cheap financing of leveraged speculation in the housing market.

Cheap money – which is considerably more expensive than “free” money (which is what the Fed has been giving away for years) – is not the answer.

The Gloves Are Coming Off

2 | By Shah Gilani

Hard, bare-knuckled punches are going to get thrown at the failed experiment that spawned the euro, at failing American politics and politicians, and at the markets.

In order to not get bloodied (yeah, good luck with that), knocked out, or taken out permanently, we’re all going to have to bob and weave and just try and go the distance.

This year is going to be about surviving, not thriving.

Sure, we’ll have plenty of shots to take, and smart trader-types will come out looking “pretty.” But, this isn’t the time to throw caution to the wind and go all in, on anything.

That time is coming, just not yet.

Let’s take the market first. Everyone loves a bull market. But is that what we’ve got?

Or are we getting a huge push upward from massive short-covering on the heels of what’s being perceived as the end of what was only last year considered the beginning of the end of the European Union?

Are we looking at a global relief rally that’s happened so quickly that institutional money managers and sidelined investors are going to have to jump in with both feet to play catch up because benchmarks are already up between 4.6% and 7% three weeks into the new year?

Let’s look at the leaders over the past few weeks. They have been the homebuilders, the railroads, and financials.

Liquidity Liquor and the Battle Ahead

3 | By Shah Gilani

Equity markets have been charging ahead for a few weeks. Not just here in the U.S., either. They’ve been rising in Europe too. Even China’s Shanghai Composite, after falling 22% last year, has been percolating higher.

Thanks to the ECB filling Europe’s punchbowl, last year’s sovereign debt hangover has been mellowed by some 100-proof “hair-of-the-dog” liquidity liquor…

And it feels good.

This party atmosphere is infectious!

After the European Central Bank poured some $600 billion (and counting) into the party bowl and let teetering European banks ladle themselves out as much as they could stomach, the Federal Reserve signaled that it wanted to throw in some free “shots,” in the form of more quantitative easing or some other easy money contribution, to make sure Europe isn’t the only party house on the block.

And now the IMF – the usually stodgy party-poopers of fiscal discipline fame – are trying to get themselves invited!

They know they’re not usually welcome while any economic bacchanal is raging, so they’re asking for donations of $500 billion to $600 billion (on top of the $400 billion in commitments they’re already packing), so they can man the kegs and stills and pump in whatever juice is necessary to make the budding soiree a true world party.

It’s amazing how giddy easy money makes everyone feel.

How else could we go from fearing the next “Lehman moment” to feeling like there’s enough money and time for over-indebted countries and increasingly strung-out banks to heal themselves?

Don’t get me wrong: I love a good party. I’ll stay until the music stops, or until the punchbowl is empty. I just hope I hear the music stop before everyone realizes the punchbowl’s been cracked.

It’s 2007.2, and Our Next “Lehman Moment” Is Coming Fast

3 | By Shah Gilani

It seems that my Thursday edition of Insights & Indictments was warmly received by the bullish crowd, many of whom reached out to me to thank me for my optimism.

I’m sorry to burst your bubbles, but I am not a raging bull (but thank you for asking).

In fact, I’m still bearish.

There’s a big difference between being bullish and playing all stocks (and other asset classes) from the long (that means “buy”) side… and judiciously buying select momentum stocks with fat dividend yields, which is what I was recommending on Thursday.

I was talking about taking the path of least resistance, which I identified as “upward,” based on equity activity through year-end and so far in 2012. You’ve heard the old adage “the trend is your friend.” Well, that’s what I was talking about. The trend has been up.

I’m bearish because I’m afraid of a European meltdown and a “hard landing” in China.

But there’s a huge danger in missing what could be the beginning of a real bull market.

So, it makes sense to start putting on solid positions and even speculating here and there. But I am not all in – not yet. However, the time is coming. But, that is also the problem.

I’m fearful that a crash is coming, and maybe soon. If we get one, and everything flushes out and we get a capitulation bottom amidst a global panic sell-off, then I’ll be all in, all the way, for the long-term.

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Follow the (Bumpy) Path of Least Resistance

4 | By Shah Gilani

Thank goodness we all just woke up from that bad dream we were having.

You know, that recurring nightmare that kept us all up in 2011.

What? You don’t remember those restless nights? Waking up in a cold sweat and clicking on Bloomberg TV to see whether European markets were going to drag us into a global depression?

Oh, all of a sudden you’ve forgotten last year’s unprecedented volatility? Now, you’re excited by early “green shoots” in 2012 and are embracing risk-on with both hands?

Wait a minute, are you loading up on financials, commodities, and emerging markets again?

Look, it’s okay to follow the market’s path of least resistance – which sure looks like upward – in order to put a nightmarish 2011 behind you. It’s fine to embrace the hope that the New Year will be a sweet dream.

Really, it’s okay, you’re not dreaming, good stuff does happen.

Not that everything that’s happening is good… but that’s not the point.

The point is that markets follow the path of least resistance. And if you fight that path and go off the reservation, chances are you’ll get left behind, looking for water while the “madness of crowds” tramples its way to the nearest watering hole oasis.

I’m following the crowds this time. For how long, I’m not sure. But, frankly, I’m tired of being mostly on the sidelines for the past few months (for some of you, a lot longer) and don’t want to “fight the tape.”

Click here to continue reading…

These Four Lessons Mean
Everything Today

4 | By Shah Gilani

Talk about information overload…

There’s so much news and data, so many opinions about events and data points, so many financial publications, so many shows, so many stocks, mutual funds, ETFs, futures, options, derivatives, so many opposing points of views about everything, it’s enough to make your head explode and your investing comfort level implode.

Most people tend towards like-minded analysts and economic analysis that confirms what they’re seeing and thinking. There’s a kind of comfort zone there, where “We’re in this together and if we’re wrong, well, I wasn’t alone; but if we’re right, boy am I smart.”

Then there are the “skittish” investors who think they know what they’re doing – that is, until they hear a different opinion from someone, anyone, they think has a leg up on them. And what do they do then? They usually ask, “Really?” Meaning, “Do you know something I don’t know?” Chances are, at that point, they are going to panic.

And, of course, there are those investors who know they are right, and stick by their convictions and positions all the way to, well, you know where.

Maybe you’ve been there.

I was there myself when I started trading professionally on the floor of the Chicago Board of Options Exchange in 1982.

But I quickly distanced myself from all the noise that distracted me from being a successful trader.

There is no magic bullet to being a successful investor; that’s the bad news. The good news is that it’s a lot simpler that everyone makes it out to be.

Here are the four most important trading lessons I have learned.

Let’s Play Insights & Indictments Jeopardy!

5 | By Shah Gilani

Today I want to play a special game I call Insights & Indictments Jeopardy!

It’s based on the classic T.V. game show where contestants vie to pose the correct “question” to the answers that are revealed in an array of categories.

For example, let’s say the category is “Federal Agencies.”

The first “answer” happens to be: “This new organization holds primary responsibility for regulating consumer protection in the United States.”

If you ring your buzzer first and shout out the question, “What is the Consumer Financial Protection Bureau?” you would be right.

Got it?

Okay, let’s play Jeopardy!