My 2010 "Views From The Barnyard" are going to address, in priority, the biggest potential influences as well as some very noticeable abnormalities. My 30 plus years of trading has not only opened my eyes to some very distinct warning signals but also the profit potential of recognizing those situations and taking action. This year's "Views From The Barnyard" will have observations relating to unique and yes bizarre happenings we are experiencing. Many of the observations will also be followed by some scenarios, based on history, that are likely to unfold. My specific topics this year will include characters as well as entities: Here we go! Federal Reserve: I have a very avid fascination with the workings of the Federal Reserve. The basic entity was created to provide stability and guidance to our monetary systems. The current reality is that the Fed is a boiling caldron of an instability pot gone foul. Their approach is not guidance but becoming a fire department with trucks and firemen constantly trying to put out fires after they are out-of-control. Meanwhile, Ben Bernanke rides the fire truck still carrying the fuel can he used to ignite the fire.
How long do you think a major corporation would allow their CEO to remain at the helm following a meltdown in their current business and future outlook orchestrated by wrong decisions of their helmsman? Let's add more to the chaos, the company is fading, the problems that preceded the demise are recognized, so the CEO continues his same path but with expeditious speed. The companies 'directors' a.k.a. Congress hasn't a clue what happened nor a resolution to eradicate the evil, but instead becomes a political willow tree blowing every direction with every gust of air. Two wrongs don't make a right but maybe 3 wrongs are better or 4,5,6? So the directors decide policy is to not have a conscience and align themselves with groups that sold their souls long ago, the regulators.
It appears that the arson, Ben Bernanke, will be allowed to continue. He is given a re-appointment as Fed chief and a bigger fuel can. Long ago Benny-boy became a politician with that as his most influential reason for his misdeeds. However, those who defend Bernanke cite Greenspan as putting Bernanke in this awkward position. Hmmm, you are standing over a dead body, A.K.A. the economy, with a smoking gun A.K.A. a pistol with unlimited ammunition, via a money printing press. Greenspan gave Benny-boy the gun, the bullets and said "Son do not shoot this gun unless you feel the urge". Would you say that to a 3 year holding a loaded gun? So the historical adage "The sins of the father will rest on the son": does apply.
Once Benny-boy gets his 'official' re-appointment it will come at a time that tough decisions and timely decisions should be made. Benny-boy does not have enough experience to be timely nor enough back bone to be tough. This year will be the breeding ground for inflations to be the next 10 alarm fire. Benny-boy will allow the fire to be wide-spread and then will get a spray water bottle to try to douse the flames. Too little, too late.
You who are economic historians need to review the late 1970's into 1982. Interest rates rose slowly then more quickly and finally jumped a full point on one discount rate increase. Meanwhile us poor commoners will have to have a dump truck full of money to go to the grocery store which brings our second topic - Commodities in everyday life.
All of us have basic life sustaining needs. We also have life-enhancing wants. These life facts encompass all humans from Australia, China, Saudi Arabia, Mexico, and even third nations like the U.S. This year of 2010 it will dawn on world capitalist that inflation is bad just because what is being inflated requires a deflation of your pocket book. Can we grow our world population while depleting our natural resources recklessly?
I graduated from Ohio State University with a degree in Agriculture. Many of my fraternity brothers lived on the family farm and went back to propagate the business. Unfortunately, debt saddled them in the 1990's long before it hit the sub-prime market. Now many who devoted their lives to farming make less now than 30 years ago. A severe food shortage will rear its head starting this year. All portfolios should have the basics of corn, wheat, beans in them. Also find ETF's that have food stuff bias in their holdings. The economy has purged the family farm to obscurity. SAD but true! The adage when farmland production decrease, weeds in the cities increase.
The stock market will have a cyclone eye which will be the exit strategy unfurling in 2010. Before the exiting begins will create volatility. The beginning of the exit plan, the eye of the cyclone, will create volatility. Once the exit plan has progressed or regressed our economy, depending upon your perspective, volatility will be at a plateau. Then the slow ebb to moderation will be an environment where the stock market will punish the buy-hold mentality. Sharp, short-term traders will reap a bonanza in 2010.
The threat of much higher Federal income tax will slow or even stymie small business expansions. Wealthy Americans will be very reluctant to invest in America, period! Guess how the stimulus will be viewed in 2010, Anti-Capitalistic. All of us fears what will happen when the government pulls its pocketbook from opened to closed, then takes its ugly hand and rips our pocketbook open and empties it via taxes.
What to do? Anytime there are new precedents being experienced, it creates volatility. I expect a 20%-30% swing in the S&P range in 2010. This means a 350 range is a high probability . The mega funds will start to be fractured. Slowly, then faster, the exodus from the funds of 50 billion and above will become the disdain of the middle class. Specialized trader funds will be in the limelight.
The catch phrase of 2009 was "Too big to fail". I expect that will not be the case in 2010 as a master fund or funds will become insolvent which means they will have to liquidate in the stock market. This will create some huge swings in short-time frames. Mr. Big fund manager will be banished with Tiger Woods to the 'island of foul'. They will be stinkers and avoided by their peers and the general populace.
I want to finish with my advice to traders. Never, in my thirty years of trading, have I seen such lazy people trying to trade. The economy has bred this as middle income jobs have been cut. These people who had these jobs lost them because they did not even work 8 hours per day. They put in an appearance at the office where they text friends and check their fantasy football league. Less time was spent at their desks as they had to go outside to smoke or visit Starbucks, both addictions. The pros will be feasting on these peoples bank rolls. Why not learn how to trade correctly and work hard. The 12 hour per day trader will rule.
2010 strategy is to narrow time frames. Day trading is the safest way. Overstaying a position with an inexperienced Fed chief could whip the market into a frenzy. The only 'hold' position will be the life-need; food stocks and commodities. The life wants will be diminished as an elusive extravagance. Survival will be on all savvy, prudent trading minds. My 2010 view from the barnyard is that to prosper in 2010 you will have to work harder in all facets of investing.
The manure in Washington is deeper than my barnyard!