Wall Street: How Long Will The Obama Correction Last?

[WallyWeaver]

My take: the Dow will hit all time high's next year. It will have virtually nothing to do with Obama, however. The author of this article has it right towards the end of this piece: as long as Uncle Ben is easy with the money, the Dow will continue to rise almost regardless of what the overall economy is doing.

WW.

11/11/2012 @ 11:01AM |2,244 views

Wall Street: How Long Will The Obama Correction Last?

Panos Mourdoukoutas, Contributor

On Election Day, Wall Street was in a party mode. Almost every sector and every stock was rallying.

What was the cause of celebration? The discounting of a Mitt Romney victory, which would fulfill Wall Street’s wish list.

First, the continuation of low dividend and capital gains taxes that had investors flocking in the high-dividend paying stocks and hot technology stocks, as an alternative to near zero money market and CD rates.

Second, the promise of less regulation, which could help certain sectors like coal mining and oil exploration that have been under the wrath of Environmental Protection Agency (EPA).

Coal stocks like Walter Energy (NYSE:WLT), for instance, rallied sharply on Tuesday. Oil Holders (NYSE:OIH), which invests in the stocks of oil service stocks, also rallied sharply.

Third, the prospect of repealing Obamacare, which could help certain sectors of the healthcare industry like healthcare benefit providers. Aetna (NYSE:AET) and UnitedHealth Group (NYSE:UNH), for instance, joined the Wall Street party on Election Day.

Fourth, a sharp turn at the fiscal cliff, as President Mitt Romney would have renewed the Bush tax cuts, as a Christmas gift to American taxpayers and Wall Street traders alike — as it could help maintain consumer-spending momentum.

But when the election was over and the beans were counted, the music stopped — and Wall Street’s party was over. In the days after, traders and investors had to reckon with the prospect of higher dividend and capital gains taxes, new regulations, and the permanency of Obamacare.

The bears came out of hibernation and begin chasing after the bulls. By Friday Wall Street has reversed the gains earlier in the week, and then some.

The S&P500 (NYSE:SPY) dropped 2.2 percent. Tech heavy NASDAQ (NASDAQ:QQQ) was hardest hit, ending the week 2.61 percent lower, dragged down by Google(NASDAQ:GOOG), Apple(NASDAQ:AAPL), Amazon.com(NASDAQ:AMZN), Intel (NASDAQ:INTC), and Microsoft (NASDAQ:MSFT).

So how long will the Obama correction last?

It depends on who you ask the question. Optimists are happy that the recent election yielded a clear winner rather than a tight vote, as was the case in 2000. Besides, Wall Street didn’t fare that bad after President Obama, though he assumed office in the middle of the Subprime crisis. Obviously, he did something right.

Besides, as long as uncle Ben is at the helm of the Fed, traders and investors can count on the helicopter dropping money on Wall Street to finance the usual carry trades.

Pessimists, on the other hand, think that the correction will last four years, until Americans elects a new President!

Which side is right?

Only time will tell. One thing is certain, however. Trade will continue on Wall Street, as optimists and pessimists place their bets on both sides of the market.

Link: http://www.forbes.co...artner=yahootix

[SgtFuryUSCZ]

***///

Investor-Dude on the radio this morning was telling everyone to dump their stocks.

Also said not invest in gold coins.

That the 2013 'surprise', whether they fix the tax thing or not, will be that we're all

in for some bad, bad times...

...and to get out of your 401k's, too before 2013 or you'll be taxed to death.

[WallyWeaver]

***///

Investor-Dude on the radio this morning was telling everyone to dump their stocks.

Also said not invest in gold coins.

That the 2013 'surprise', whether they fix the tax thing or not, will be that we're all

in for some bad, bad times...

...and to get out of your 401k's, too before 2013 or you'll be taxed to death.

Hey ladies, hope you're having a nice Sunday.

My opinion is investor dude is wrong.

I will try to keep my explanation short and sweet:

If US GDP is stuck at 1.9%, US debt is approaching $17 trillion, and even companies like McDonald's are reporting losses why is the Dow near its all time high? It doesn't seem to make any sense.

The reason the stock market is doing well is the US Fed is keeping it affloat on a sea of cash. As long as the US Fed keeps printing money the Dow will continue to rise, almost irregardless of what the economy is doing. If the Fed were to announce they were going to permanantly stop QE the Dow would drop below 4,000 in a matter of months. So the money printing is not going to stop any time soon.

I understand what investor dude is saying for the very short term (few weeks post election) and I do understand the idea about increased capital gains taxes. But tell me where else will people put their money to make it grow?

The USD is rapidly devaluing (the purchasing power of the USD has been cut in half in the last 3 years) so it wouldn't be smart to just hold cash, you will lose money. Interest rates are so low and will remain that way until at least 2014, so bonds are out.

So what is an investor to do? And by the way, capital gains are capital gains, so wherever you put your money, stock market or not, if it grows you are going to pay the new higher rate.

My personal opinion is I see 3 places where investors will make money: 1. The major US exchanges: people may pull their money out for a short period but they will put it back when they see it is actually doing well and they have limited options otherwise; 2. Precious metals: nothing does wonders for precious metals like a devaluing USD and therefore an increase in demand for the yellow and white stuff; 3. The Foreign Exchange market (FOREX): people who short the USD or go long on the other major currency pairs (EURO, AUD, etc.) will also do well as the USD continues to plummet.

And that's my take.

Okay, maybe that wasn't exactly short and sweet but that was the best I could do.

WW.

[SgtFuryUSCZ]

***///

As always - BRILLIANT!

Thank you WonderfulWallyWeaver!

P.S. what about the coins -vs- lump bullion/gold jewelry?

(we know not to buy bars, too much chance for loaded/filled/hoax bars)

What say you...?

[WallyWeaver]

***///

As always - BRILLIANT!

Thank you WonderfulWallyWeaver!

P.S. what about the coins -vs- lump bullion/gold jewelry?

(we know not to buy bars, too much chance for loaded/filled/hoax bars)

What say you...?

Awwww, ladies, you're making me blush.....

There are probably plenty of different points of view on this but here's mine:

Because I'm buying gold/ silver strictly for investment purposes/ wealth preservation, I stick strictly to government minted coins ( American Gold Eagles, Canadian Gold Maple Leaf's, American Silver Eagle's, Canadian Silver maple Leaf's) and my preference is for the Canadian stuff (it actually has a higher purity). Yeah, you pay a little more above spot to get them but when the day comes to sell you will be amazed at how many buyers you will find for your coins.

To me, buying lump bullion or jewelry becomes interesting after I have about 1,000 Gold Maple Leaf's, but not before then. But I will be honest, I don't really have any experience buying lump bullion and very little experience buying gold jewelry so my answer is definitely biased.

Hope that helped.

WW.

[SgtFuryUSCZ]

***///

HUGE help! We're huggin' yer neck over here

We're totally down (& vested in) the Canadian stuff.

We like shiny objects ...and they are VERY sparkley indeed...

And the lump gold was just our way of turning the old jewelry into our own

nuggets-by-weight ...easy to carry smuggle, barter.... less likely to be ripped out

of our ears, off our necks & wrists when TSHTF.... not conspicuous.

We love picking your big, beautiful brain ... you're in no danger, we're pretty sure

you have enough gray matter up there for 10 heads!

So, thanks for sharing!

[cris]

***///

As always - BRILLIANT!

Thank you WonderfulWallyWeaver!

P.S. what about the coins -vs- lump bullion/gold jewelry?

(we know not to buy bars, too much chance for loaded/filled/hoax bars)

What say you...?

Just my 2 cents...Jewelry has an artistic value (from a wholesaler)

But, its real value when selling is its weight in gold or silver, just like

bullion.....So if you're buying, only pay for the actual value of the

precious metal content.

Also, there are different grades of gold....14 karat is less valuable than

18 karat....18 is less than 24 etc.

[SgtFuryUSCZ]

***///

CleverCRIS...!

That's exactly right.... head of the class

When TSHTF, there won't be anybody around buying it for it's "prettiness" factor.

So we melted it down, seperated it by gold grade and each nuggy has it's own little stamp.

[cris]

***///

CleverCRIS...!

That's exactly right.... head of the class

When TSHTF, there won't be anybody around buying it for it's "prettiness" factor.

So we melted it down, seperated it by gold grade and each nuggy has it's own little stamp.

Thank you Ladies....I saw your post just before mine, so I was a

little late as far as advice, It really sounds like you've got it covered.

Hey Wally, quick question. What do you think is holding Siver down

at a 50 to 1 ratio?....And do you foresee a catalyst to improving that?

[WallyWeaver]

Hey Wally, quick question. What do you think is holding Siver down

at a 50 to 1 ratio?....And do you foresee a catalyst to improving that?

Hey Cris, good evening, friend.

Both gold and silver are held down mainly through paper manipulation by the gold banks on the COMEX. These banks hold huge amounts of "long" and "short" positions on both metals and make money off of the spread when they "cash in." Many people ask why gold banks would hold both long AND short positions and, again, the answer is because they are making boat loads of money on the spread.

Hopefully this doesn't seem too conspiratorial as this really is how it works:

All entities involved (gold banks, Central Banks, and industry/ manufacturing) are interested in keeping metals prices in a certain range. There are many reasons for this, for both gold and silver. Concerning silver: silver is a metal that is widely used in manufacturing and application purposes. For instance, silver has EXCELLENT conductivity properties, much better than copper. For this reason you can find silver in just about every piece of electronic equipment on the market. Heck, I even read an article that silver is being used in the construction of power transformers and some high voltage power lines on the US power grid because, again, there is far less attenuation of electricity when it travels down a path made of silver versus a path made of copper. In a phrase, silver is a much more efficient metal for all practical purposes.

And this is the main reason why silver is now at a 50:1 ratio. If silver was at its correct ratio with gold manufacturers of electronics (smart phones, laptops, flat screen TV's, etc.) would have to charge more for their goods. It really is that simple.

Now even though silver is at a much lower ratio with gold those ratio's, for the time being, pretty much move in harmony. When gold goes up, silver goes up; when gold goes down, silver goes down. I say this because most people (investors, politicians, normal citizens, etc.) don't pay that much attention to silver prices, they pay most of the attention to the gold prices. And this is another reason for the manipulation of prices. If gold were to rise too rapidly Central Banks are concerned that it would signal to everyday folks, and investors, that there are real problems. For instance, if people were to wake up and see gold at $3000/ oz. it could signal that the overall economic condition is bad and it could cause a panic, both for normal folks and for investors. It is for this reason that the Central Banks work with the gold banks to make sure gold doesn't rise too rapidly. And if it does, they have tools to knock it back down. This is referred to as Management of Perception Economics.

If gold or silver, or both, rise too rapidly these entities simply increase their amount of short positions by as many contracts as are needed to push the price back down to where they want it (a general prinicple in investing is if more people hold long positions (bull market) that position rises; if more people hold short positions (bear market) that position falls).

A perfect example of this can be seen in the last few weeks of February of this year. During those last few weeks gold made a nice rise from $1724 on Feb. 17th to $1787 on Feb. 28th. And then, on Feb. 29th, gold "mysteriously" dropped almost $100 to $1698.... in one day! Hmmmm.....

Okay, I just re-read that and that was a pretty long explanation. But as you can see there are a lot of moving parts involved.

To answer your second question: could there be a catalyst to return silver to its historical ratio with gold? The answer is yes. In fact, this is a main reason why silver bugs feel that silver is a superior investment to gold. Gold is just a storage of wealth, it's purchasing power is the same today as it was 50 years ago. Silver is also a storage of wealth, but it could also end up being the mother load, from an investment standpoint (if the historical ratios are seen again).

Some catalysts are already in place. I remember reading an article or 2 many months back that dealt with the closing of silver mines. The reason: the price of silver was too low for silver miner's to go in the ground to get it and then turn a profit. With rising fuel costs and the low price of silver they couldn't turn enough profit to keep their operations running. Now that's what I call a catalyst: less miner's equals less available silver.

Keeping the first catalyst in mind, now consider that silver usage for manufacturing purposes has only risen year-over-year, while the amount of silver being produced has been in decline. So, many in the silver community see good old supply and demand principles coming in to play, and pretty soon, too.

Now, pure silver mines are starting to shut down, manufacturer's are using it more widely, and here's a third factor: investment. Many folks out there now realize that all the Central Banks of the world seem to be in a mad dash to currency debasement (money printing). People realize that their paper currencies are buying less than they used to, and they are also concerned about the massive debt that their respective countries are racking up. So, look at the Chinese, or the people of India, or even folks right here in the good old US, they are buying precious metals. They are not alone, Central Banks and governments have also been large acquirers of the shiny stuff. As the prices continue to move higher, and they will continue to move higher, more buyers will move into the metals markets. This will futher fuel supply and demand principles causing gold (and silver) to move ever higher.

So, less miners, more manufacturing, and the potential for a huge increase in investment are all very real potential catalysts for a return to the historical ratio.

Okay, I feel like I wrote a book.... Hopefully that was helpful.

WW.

[TBomb]

***///

Investor-Dude on the radio this morning was telling everyone to dump their stocks.

Also said not invest in gold coins.

That the 2013 'surprise', whether they fix the tax thing or not, will be that we're all

in for some bad, bad times...

...and to get out of your 401k's, too before 2013 or you'll be taxed to death.

Worse than now???....Oh....geesh.