January 31, 2014
- Stocks sink (again): Guenthner identifies a clear indicator of the market’s next move
- “Swimming upstream”: Cybercriminals’ latest devious scheme, and a profitable solution
- If you’re not “proud to be an American,” be grateful you’re not French or Argentine…
- Sounding off on the MyRA-not-Breckinridge plan… Is Germany’s gold in China?… Sage advice from Mark Twain (or is it the Bible?)… and more!
“It’s time to start talking about an actual, honest-to-God correction,” says The Rude Awakening’s Greg Guenther.
Major U.S. stock indexes are deep in the red again this morning. As we write, the S&P 500 sits at 1,775 — down nearly 4% from its all-time high one month ago today.
MasterCard delivered an earnings miss this morning. On top of Amazon’s miss after the close yesterday, it doesn’t bode well for the vaunted American consumer. Meanwhile, core PCE — the Federal Reserve’s favorite measure of inflation — was updated this morning: It’s mired at 1.2% year over year, well below the Fed’s 2% sweet spot.
“All markets go both up and down,” wrote money manager and blogger Barry Ritholtz a few days ago. “This should not come as a surprise to any of you, but apparently, there are still some newbies who have yet to learn this profound insight.”
Then again, the newbies have gone two years and three months without a correction — generally defined as a drop of at least 10% that occurs after a rally of at least 10%. If you want to be precise, it’s been 835 calendar days.
Even a few veterans might be forgetting about the Panic of 2008 at this stage: In the history of the S&P 500, there’ve been only four rallies longer than the current one — and two of them took place within the last generation….
“Is a much deeper correction (something between 10-20%) out of the question at this juncture?” Greg asks rhetorically. “Certainly not.”
“If you’re looking for additional clues on which direction the market might move over the next few weeks,” Greg suggests, “remember to check out trading volume.
“During a healthy rally, you want to see big volume on days when the market is up. Right now, we’re seeing the exact opposite. On the rare day that stocks move higher (like yesterday), we’re not getting a lot of participation. In fact, every big-volume trading day so far this year has occurred over the past two weeks, when the market has moved significantly lower.
“If you’re looking to play a potential bounce, you have to watch trading volume to see who’s participating in the move. The less relative volume you see, the less likely a move is going to stick.”
In the meantime, we’re in the proverbial “stock picker’s market.” Since a dartboard approach won’t work, we go in search of an idea that can thrive despite an overall downtrend…
“The federal government and its contractors, subcontractors and suppliers at all tiers of the supply chain are under constant attack, targeted by increasingly sophisticated and well-funded adversaries to steal, compromise, alter or destroy sensitive information.”
Follow the breadcrumbs with us, dear reader: There’s quite nothing like an investment with a government-guaranteed catalyst.
The above quotation comes from a new report by Michael Gilmore — the Pentagon’s chief weapons tester. His broad conclusion: Military missions are at “moderate to high risk” from determined cyberattackers.
In some instances, foreign governments are targeting companies “deep in the supply chain to gain a foothold and then ‘swim upstream’ to gain access to sensitive information and intellectual property.” By the time a hacker’s code worms its way into a weapons system, the operator of that system is often helpless to do anything about it.
The Pentagon is wasting little time swinging into action. From the Reuters newswire: “The U.S. Defense Department and General Services Administration on Wednesday mapped out six broad reforms to improve the cybersecurity of more than $500 billion in goods and services acquired by the U.S. federal government each year.”
Among the recommendations — buying parts only from original equipment manufacturers, their authorized resellers or other trusted sources. That would help defend against counterfeit parts.
Nor is that the only step the Pentagon is taking on that score: “The U.S. military,” BusinessWeek reported last August, “has started implementing a new tactic: It’s requiring suppliers to mark microcircuits — which are used in everything from aircraft to medical equipment — with a patented plant-based DNA…
“These forensic markers are invisible to the naked eye but show up under UV light. Each supplier also gets its own highly customized sequence (or sequences), which the military verifies in a laboratory.”
Within the federal colossus, the Pentagon alone has oversight of 4 million parts worth more than $94 billion, according to the Center for Public Integrity.
Take only 10% of those figures and you’re looking at nearly $1 billion in business for the one company that has a lock on this plant-based DNA.
That’s right — one company, reeling in potentially $1 billion.
Its current market cap? $100 million.
The mainstream hasn’t awakened to this story yet, and shares are still dirt-cheap — for the moment. That could well change by Feb. 19 — less than three weeks from now. “That’s when I expect major news out of this tiny company,” says our tech maven Stephen Petranek. To learn all about the staggering profit potential, we invite you to check out Stephen’s latest presentation.
It could always be worse, French edition: “Overseas investment in France fell by 77% last year,” the U.K. Daily Mail informs us.
A report from the United Nations Conference on Trade and Development shows $5.8 billion of foreign investment flowing into France during 2013 — the lowest in 27 years. “This will inevitably add further fuel to ongoing accusations,” says the Mail, “that the French economy has been woefully mismanaged by Socialist President Francois Hollande.”
Gee, ya think?
Monday brought word that French unemployment claims rose to a new record in December: So much for Hollande’s promise to start lowering unemployment by the end of 2013. Then again, he’s been distracted by his lady-friend issues…
“Segolene, Valerie, Julie… After a while, they all run together…”
He’s been so distracted we wouldn’t be surprised if the truckload of horse manure in front of the parliament building is still there after a protester deposited it two weeks ago…
It could always be worse, Argentine edition: “The retail sector is completely paralyzed!” says motorcycle dealer Erika Antar. “How can we know what price we should charge?”
As we noted at the time, the Argentine government devalued the peso against the dollar one week ago today. The black-market exchange rate has soared from $10 to $13 in the space of a month.
Back to Ms. Antar, blogging at the website of the France 24 news channel: “The mopeds that we sell are usually purchased from an Argentinean factory, but they’ve stopped selling since the announcement regarding the devaluation. What with the value of the peso changing every day, producers no longer know which margin to apply.”
So her dealership isn’t selling any bikes right now. “When clients arrive, we just tell them, ‘We’re sorry, but we can’t sell because we do not have prices,’ and they tend to be understanding. In any case, since the announcement of the devaluation, people are only buying the essential necessities of life.”
And now, as a public service, The 5 wishes to inform you of the legal ramifications if you’re hosting a Super Bowl party this weekend.
The “Now I Know” blog reminds us of the quandary faced by the Fall Creek Baptist Church of Indianapolis. In 2007, it planned to host a “Super Bowl Bash” to watch the hometown Colts face the Chicago Bears.
“Title 17, Section 110 of the United States Code discusses a lot of exceptions to the general copyright rule,” the blog explains, “and one of those exceptions allows for the run-of-the-mill, at-home Super Bowl party. But there are some limitations. Subsection (5)(B)(i)(II) of that law talks about larger spaces — places with over 2,000 square feet of floor space — and the events held there, listing off some exceptions to the exceptions. For example, these larger venues are only safe so long as ‘no such audiovisual device has a diagonal screen size greater than 55 inches.’
Hmmm…
The NFL lowered the boom on the church, which canceled the event. “The NFL reconsidered its policy for 2008, after realizing that churches probably weren’t a good target for the league’s fanatical approach to intellectual property rights enforcement.” As long as the showing is free, they’re on safe ground.
And in all likelihood, so are you. From an analysis posted on the website of the Bowie & Jensen law firm here in the Baltimore area: “As long as you are watching the game in your private home and are not charging admission, you can have a giant 1 bazillion-inch television or projector and cram your house full of people like a clown car and not worry about it.”
Whew…
“Just a wandering thought on another potential objective of the MyRA,” a reader writes on an unexpectedly lively topic this week.
“Given that the U.S. Treasury is going to have to find more and more buyers of U.S. debt to fund the unfunded liabilities (Social Security and Medicare) and any ‘potential’ incremental costs for Obamacare…
“By creating the MyRA program, this would make for an instant pool of buyers for all of these bond purchases going forward without having to go the Chinese. Kill two birds with one stone: They can promote that we are helping us save and then turn around and say, ‘Look, we are not owned by the Chinese anymore.’ What do you think?”
“How different is a MyRA from Social Security?” asks another reader for a third straight day. “Yes, the MyRA is in the name of the owner, and Social Security is in a trust fund.
“So is MyRa really guaranteed? Social Security was good till the government began to borrow from the trust fund. Anything under government control seems to have its LEAKS.”
The 5: Yup. The bit about how it will be structured like a Roth IRA made us raise an eyebrow. Ditto that once the balance reaches $15,000, you have to convert it to a Roth.
We soured on Roths in Apogee Advisory more than a year ago, when talk of retroactively taxing the sheltered income found its way into Time magazine. No, there’s no urgency right now to cash out and take an early-withdrawal penalty… but there’s also precious little sense putting new money into a Roth or converting a regular 401(k) or IRA into one.
“While reading today’s 5, two issues really stuck out,” a reader writes. “About Social Security: Please go back to the law that created Social Security and help your readers understand that the initial purpose was to serve as a safety net for those citizens that did not have any type of retirement savings or income. It was not meant to be a retirement savings plan.
“It is Social Security insurance, social being the key word. One portion of the program is a survivor benefit. That too is insurance. The program has evolved away from its original intent and in doing so has become insolvent. I would have thought that your readers would have more fully understood the law’s original purpose and structure. If this is a baby boomer’s retirement fund, he will soon be sadly mistaken.
“The second issue that I have yet to read an analysis on is any examination of a potential link between the extraordinary amounts of gold that China is importing and the apparent lack of real, hold-in-your-hand gold that exists in the various banks — the one allegedly holding Germany’s gold, for example.
“I wonder if the immense amounts of real gold leased by the bullion banks to traders and the gold ultimately sold to China (and India last year) are the same actual gold. This would put the soon-to-be-worthless paper gold in the hands of soon-to-be-insolvent institutions and the real hold-in-your-hand stuff backing the yuan, immediately setting into motion your oft-discussed doomsday delivery default (DDD). This in turn could contribute to the collapse of the dollar and the value of physical gold going parabolic.
“If there is a correlation and the American banks have been methodically duped by the Chinese, would the U.S. government step in and make the banks whole? The U.S. Treasury bonds held by China could be canceled or traded for the gold contracts. But even if the banks did not collapse, the dollar would be at immediate risk of losing its reserve currency status.”
The 5: On Social Security, there’s another wrinkle — the Supreme Court ruling that there’s no legally binding right to collect benefits — no matter how long you’ve “contributed” to the system.
As for whether Germany’s gold ended up in China, we speculated a bit about that last fall in Apogee Advisory. “The gold being drained from the vaults in New York,” Addison Wiggin surmised, “has moved to China, where both the central bank and ordinary people are loading up at prices last seen in 2010.”
But you raise an interesting new wrinkle. We’ll have to think about it…
“When you guys are dealing with readers who are clearly missing the mark,” writes our final correspondent, “I have some good advice for you.
“In the words of Mark Twain: ‘Never argue with stupid people. First they will drag you down to their own level. Then they will beat you with their experience.’
The 5: Good advice… but you tripped off our “bogus quote” radar.
The folks at Wikiquote can’t seem to find that in the Twain oeuvre. One contributor suggests it can be traced all the way back to Proverbs 26:4: “When arguing with fools, don’t answer their foolish arguments, or you will become as foolish as they are.”
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. “You recently mentioned your income specialist Neil George,” reads one final email. “I was wondering what happened to him if it is who I am thinking of.
“The Neil I knew wrote for Personal Finance for forever, then did By George and The Pay Me Strategy. Is this the same guy? If it is, I have followed him since Personal Finance, and he just sort of dropped off the face of the Earth. If so, does he have a newsletter? Thanks, and appreciate any info.”
The 5: One and the same. He joined us a little over a year ago to handle our Lifetime Income Report. One of the strategies he’s developed for his newest readers has incurred the wrath of the IRS… but the IRS is helpless to do anything about it. No less than the Supreme Court told the IRS to pound sand.
Curious? Learn how to put this strategy to work in your portfolio, right here.