Thursday, December 20, 2012

New Year And After

Reverse head and shoulders pattern worked beautifully. Market is up, as it should be in December. I feel good, but my thoughts are about future, as usual.

Fiscal Cliff is on our thoughts. I am actually very pessimistic about it. Yes, I'm sure it will be resolved. It will not be resolved soon, but it will be. But I don't believe in a good resolution

Obama is completely pissed off by 2011 debt limit crisis created by GOP from nothing. He doesn't show it, he behaves as a big politician (unlike most of GOP kids), but I can feel it. I understand this human emotion, but it won't lead to any resolution fast enough. Fresh from election victory, he will press for maximum.

GOP is full of themselves and don't understand the size of a hole they are in. They tried to start negotiations from position of force, which they don't have. Because if negotiations fail, Obama can always point a finger in their direction.

But the biggest problem is in any possible solution. Because only Bernanke and some Fed governors truly understand the size of the crisis. We are truly in Great Depression 2.0 (just read my blog from 2008-2009), and there is no easy exit. The only true cure is time. But struggling patient (economy) can't survive without some life support, which comes from two sides: Fed and Government. Fed provides unlimited credit when we are balancing on edge of disinflation if not outright deflation, when government spending helps to keep this credit in play. And any possible solution legislated by Congress and signed by President is going to cut government spending, instead of raising it.

I am as free market as it's only possible (not libertarian, because it's impossible, the only libertarian place on Earth is Somali). But desperate times call for desperate measures. Government already saved banks, AIG, GM and Chrysler. But it still didn't save the economy. We need more stimulus, not less, more spending, not less. There is also fundamental problem with increasing money supply by increasing credit. I'm afraid we are at some limit point here. If time permits and ideas fall together in my head, I'll write an article. about it.

Unfortunately, there is no political will for big government spending. That's exactly like Japan in 1990s. I don't think result is going to be different.

Back to the market. I feel that, regardless of Fiscal Cliff resolution, we are going to have a rally for next several months. Then reality is going to kick in: slow or no growth, unemployment rising again. Market is going to go down some, then range trading for years.

Best strategy I can imagine:

carefully choose growth stocks

add some fixed income

trade identifiable ranges.

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