I'm Betting on a Rising Stock Market

The belief that the stock market will go up forever is  a bubble psychology that goes back to the South Sea Bubble, which fooled even Sir Isaac Newton. Since 2009, and especially since President Obama's reelection in 2012, the stock market has been going at a tear. The tear will continue. The editorial page of the New York Times proves it.  The Times wrote this yesterday: 

On one side is a small yet vocal minority of Fed officials who want to head off inflation by raising rates sooner rather than later. On the other is a majority that thinks a near-term rate hike would stifle growth and, with it, any chance of restoring health to the labor market. That group includes Janet Yellen, the Fed’s chairwoman, and most members of the Fed’s policy committee…The economic evidence indisputably favors Ms. Yellen, who has indicated that rate increases should not begin until sometime next year, at the earliest. It will take until then to be able to say with confidence whether recent improvements in growth and hiring are sustainable.

The reason that the Times's editorial is important is that the nation's hierarchy of decision making with respect to interest rate policy is as follows:

Investment banker cronies--> Ochs Sulzberger family-->The New York Times--> public opinion among Democrats --> President Obama's opinon --> Janet Yellen's opinion --> Federal Open Market Committee decision

If a Republican were in office, the Wall Street Journal would play the equivalent role.

Rates will be lower, or will increase less, than stock market participants expect because the Democrats have a commitment to boosting the stock market. The Times goes on to make the curious claim that keeping interest rates low will improve real wages; that real wages have declined while interest rates have been kept at historically low levels for the past 43 years does not deter them.  Recall the old saying about insanity.  

 Seeking Alpha says that George Soros is currently hedging the S&P 500. I'm sure that there is a logical or statistical basis for his tactic  because all evidence says that the stock market is high now.  The support of the Fed will continue to keep the market at high levels into next year, though.  I'm not buying the S&P short ETF, SH, just yet. However, I have about 1% of my portfolio in the VIXX index and an interest rate short index, both of which have declined and are near all-time lows. The VIXX index measures market volatility, and it goes up when the stock market goes down.  It is at all-times low, which is an indicator that the stock market will go down.  

From a policy standpoint the New York Sun's Seth Lipsky continues to offer a still, small voice of financial sanity among the Sodom and Gomorrah of the American media.  Sadly, Paul Krugman will have to turn into a pillar of salt before any change in America's addiction to print-and-spend economics ends. 

For now, I'm buying a little more Chicago Bridge and Iron (CBI).  It's gone up a few percent since Buffett bought a second set of shares; according to Seeking Alpha several other hedge funds are piling in.  The sharp decline due to rumors about improper accounting and the firm's president's illness seems to have offered Buffett and other hedge funds a buying opportunity; including pension fund holdings, Berkshire may own 25%. 

Opposition from Giuliani, Christie Suggests That Astorino Is a Man of Character

Big-government Republicans like Rudolph Giuliani and corrupt ones like Chris Christie have chosen to either support Andrew Cuomo or avoid supporting the small-government GOP candidate, Rob Astorino.

The New York Daily News reports that on July 24 Christie gave Astorino the brushoff because he doesn't think Astorino can win. Unlike Democrat Andrew Cuomo, who is facing a corruption investigation concerning the Moreland commission,  Astorino probably isn't corrupt enough for Christie.  Like Cuomo, Christie is under a corruption investigation:  Christie's close aides have admitted to closing lanes at the George Washington Bridge because the mayor of Fort Lee, Mark Sokolich, didn't endorse Christie in 2013. Christie has allowed his aides to take the blame, but why on earth would anyone believe that he didn't know?  The Newark Star Ledger adds that Christie's private attorneys have billed New Jersey taxpayers $6.5 million for legal services in his private defense.

At the same time, New York City's Mayor Giuliani, a guy who claimed to be for less government but never cut government, has been quietly supporting Andrew Cuomo.  There are so many things that Giuliani might see in Cuomo: the exodus of 400,000 New Yorkers during Cuomo's three years as governor, his attack on the Second Amendment, his failed Common Core school reform, or his narcissistic plan to rejuvenate New York's economy by appointing eight SUNY campuses to house a few well-connected tech firms, then spending $200 million dollars in TV ads around the country that use the dumb plan as a pretext to promote Cuomo himself.

 I rejoined the GOP out of desperation to get Cuomo out, but the GOP's bankrupt leadership is truly a gang that can't shoot straight. Perhaps Astorino would be best off disowning the GOP and using the GOP ticket to run a Libertarian campaign.

Is It Time to Buy Socialism Insurance Now That Federal Debt Exceeds GDP?

On April 8 2013 when the gold index fund, the GLD, was at 153, I got out of much of my gold, and I wrote that gold might hit $1,200. The GLD is currently at 127, and gold has already dipped below $1,200.  My guess is that there is still some downside in the gold market, though.  The reason is that the effects of the monetary creation since late 2008 through this year have had stimulative effects on the stock market.  The monetary stimulus of Reagan-Bush-Clinton years had a depressing effect on commodity prices,  which is part of why inflation was not as extreme as it might have been. The Bernanke-Obama monetary creation since 2009 will have larger effects than I initially thought, although I did start buying stocks around Thanksgiving of '09.

One of the characteristics of markets is that they tend to bottom with an overreaction, and we haven't seen capitulation in gold.  The decline has been orderly.  I am therefore still somewhat bearish in gold, although buying gold now will make sense in the long term.   Gold is socialism insurance, and we need socialism insurance now more than ever.  The monetary expansion keeps interest rates low, so gold exploration--along with other natural resource exploration--becomes more competitive, pushing down gold and gold stocks. Lower interest rates lead to more exploration, which leads to lower commodity prices, which lead to lower short-term inflation. Ultimately, inflationary expectations will escalate.

Writing in Seeking Alpha, Kirk Lindstrom points out that federal indebtedness, $17.7 trillion, now exceeds the US GDP, $17.3 trillion, a sign of socialist excess.  Lindstrom posts a revealing chart: Gold has gone steadily down since November '12 while the stock market has gone steadily up since April '11.

The gold market is complicated by additional factors.  The Chinese and other central banks have been buying gold in spite of Wall Street, Warren Buffett, their wholly owned media and academia's persistent hostility toward gold.   Second, the Obama monetary expansion occurred on top of a significant contraction and rising gold price.  Therefore, the deflationary and the inflationary processes are intermingled.  Third, the dollar is heavily subsidized by the world's central banks, so inflation may not come gradually; rather, there is a risk of a sharp monetary correction or collapse.  The third consideration makes owning gold more important than it was in the 1970s--even in a flat or declining market.

I am still waiting for capitulation in the gold market.  My stock investments have been OK, but I made the error of focusing on low-risk (low-beta) stocks that didn't appreciate to the same degree as tech stocks. VNR, Vanguard Natural Resources, is one of my holdings, and it's had a few short-term setbacks, but I'm holding onto it. It yields over 8%, and until the recent setbacks everyone believed the management to be fine, and most still do.  At the same time, there has been good news about Kinder Morgan, which I also own, and the MLP went up almost 30%.  I was also holding Heniz when Buffett bought it.  I had been holding CBI, Chicago Bridge and Iron, but I pulled out when it fell by about 20% on rumors.  I am going to buy it back soon. (It's since fallen another 20%.)  I also bought Kellogg (K) recently. It had fallen on poor Special K sales.  I am holding Philip Morris, Pepsi, and Kimberly Clark, which all had nice price appreciation over the past few years.  I like the MLPs because they pay rich dividends.  I also am making long-term investments in Dollar General, Traveler's Insurance, and Dominion Resources (D).  D is priced high for a utility, but they also hold a considerable amount of energy pipelines, which makes them similar to a midstream MLP.  Critics of D say that the dividend coverage is poor.  Also, I am making an exception to my pe-below-15x earnings rule. At the same time, the company is poised for more rapid growth than other utilities when natural gas prices rise.  The down side to investing in lower-risk companies with low price-earnings ratios is that they don't jump in a hot market like last year's.  However, I am holding Intel, Apple, and Microsoft, which have been doing well this year.  I also bought CSX, the railroad.  The railroads have been a play on energy, and I believe that they still have a way to go.  My stocks have been weak in the past few weeks, but so has everything else.  I have to learn not to listen to Warren Buffett's friend, Mr. Market.  

I am waiting for the gold market to fall. Maybe I'm on a fool's errand, but I don't believe that either the stock market run up or the gold market run down is over.

Mineoloa Mothers Support Rob Astorino's Stop Common Core Ballot Line

  

Rob Astorino put together a Stop the Common Core ballot line. They got 62,000 signature to introduce it. Because mothers around New York State are outraged about the common core standards, which Cuomo adopted to appease the Democratic Party and Bill Gates, the additional line should effectively supplement the Republican Party line.  Astorino is a great candidate.