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A Potential Crash UP…

Before I get into this week’s market forecast, I would like to give you a short synopsis of my time spent at FreedomFest this past week…I love going to and participating in the annual

Before I get into this week’s market forecast, I would like to give you a short synopsis of my time spent at FreedomFest this past week…

I love going to and participating in the annual FreedomFest conference. If you consider yourself an informed, intelligent, independent thinking kind of person, then I strongly encourage you to add this meeting to your 2012 schedule of ‘must attend’ meetings.

We had a booth in the exhibit hall at this year’s FreedomFest. I also got the opportunity to speak at one of the sessions. One of the things that strikes me when coming to this meeting is the incredible level of intelligence of the average attendee. These people are smart, articulate, extremely well read and certainly opinionated… but, the reason that most attend is to hear other points of view. It is an amazingly refreshing experience to talk with this rare microcosm of our great country. I only wish the attendees of this conference represented the majority view in this country… maybe they do… I hope they do.

The first day of the conference, Chip Wood, moderator of FreedomFest advised participants that ‘even though we come here with differing views there will be no shouting, no name calling, and no pounding on the tables!” So for three very full and fun-filled days of meetings and presentations we got to partake in a civil discourse of the political, financial, and social issues facing our country today. Even with the libertarian slant of the majority of attendees, the debates which took place on the panels, were equally represented with conservative and liberal points of view. FreedomFest, the ‘brain child’ of Mark and Jo Ann Skousen, is always thought provoking, and informative. When Mark dons his Benjamin Franklin costume, (he is an eighth generation descendant of Ben Franklin) and debates with Patrick Henry, John Adams, and Thomas Jefferson, it can be both entertaining and enormously educational!

This year’s theme for FreedomFest was “The American Revolution vs. The French Revolution” with vigorous debates regarding which of these represent the current trend of our country. The result of this debate was not conclusive with most of the votes coming in on the side of the American Revolution, while pragmatically believing we are, unfortunately, headed more toward the French Revolution way of life.

The mood of the attendees at this year’s conference exhibited more concern for our country and our financial stability than I’ve seen before. I am not as pessimistic as some, but certainly understand their fear. Attendees reflected a growing fear that the Dollar is going to collapse or inflation is going to explode higher and wipe out a lifetime of savings or worse… that the great American dream of personal freedom and self-reliance is on the verge of being lost forever to the forces of socialism and overwhelming government control.

But, as strong minded as these folk are, I detected no small amount of angst and, to a lesser but important degree, real fear that their financial security, along with their freedom hangs in the balance. I am more optimistic about us being able to hang on to rugged individualism that birthed our nation in the near-term (next 3-5 years)… I am not so optimistic in the longer-term.

Not coincidentally, last week, just before the start of FreedomFest, I received an interesting email from a reader of these missives who decried that the problem with America is capitalism and that socialism is the only real solution. This opinion is both naive and truly shocking… not that someone can have such an opinion… no, that is certainly believable in this day and age… but that anyone who follows a financial letter that is focused on making money through the free market actions of true capitalism could harbor such an opinion. Maybe I am still far too idealistic in my thinking, but you cannot on the one hand want companies to grow, increase their top-line and bottom-line revenues through the unfettered flow of supply-and-demand for their goods and/or services… and also want the government to control and/or own (same thing) wealth creation. You cannot expect a stock market to work when prices and profits are rigged by a central government. To think that socialism and the stock market can coexist is grossly naive. Sure, there are stock markets all over the world… some in communist countries and some in socialist countries… but those markets do not and would not thrive were it not for the capitalistic, free market that the US and other capitalistically-based countries provide to investors.

Now, on to pressing but not more important matters… How to play this market between now and the ‘day of default’ on August 2nd…

I Continue to Be Optimistic!

Since it is hard for me to believe that anyone in Congress is telling us the whole truth, I suspect that the largest economy in the world with enormous sums of taxes flowing into its central treasury, will NOT face economic Armageddon if the Congress and the President do not reach a solution about the debt-ceiling. My guess is there are billions of dollars of waste and/or unneeded governmental programs (no, not Social Security, Medicare or Medicaid) that can be cut and/or defunded. And, let’s not forget that there is this odd organization called the “Federal Reserve”, which is, among other things, a non-regulated printing press that can print trillions of dollars just because it wants to. What is to keep this printing press from paying the debt? After all, it has been monetizing our debt for nearly two years. I wonder why no one is speculating on a clandestine (because it… the Fed… is not “mandated” to offset the debt-ceiling) plot where we (the nefarious taxpayer) will, via the Fed, keep everything moving smoothly along, proclaiming that the Emperor is fully clothed by printing money we do not have, when in fact, the Emperor is naked-as-a-blue jay and can only pay its debt by printing fiat (pure inflation-generating) money? You cannot and I cannot and the US cannot… borrow its way into prosperity. In the long-run, we cannot continue to dig ourselves deeper and deeper into debt. One day, the piper must be paid.

In the short run, though, I believe our Government will, in the last hour, put together a ploy, a plan, a scheme, a bill… under the guise of ‘bi-partisanship’ (a phrase which these days actually makes me physically ill because I know our way of life has, once again, been compromised… compromise is wrong when it means you have to give up or loose a portion of your freedom… financial or otherwise). When this wonderful day occurs, the markets around the globe will breathe a collective sigh of relief and maybe move significantly higher.

I happen to believe the debt-ceiling issue will be resolved and the market will move higher. Our time-cycle forecasts, technical analysis and fundamental analysis show the market is likely to be positive this coming week (see time-cycle forecast for S&P 500, below). I sent out a SuperCycle trade for the S&P 500 earlier today to those of you who are subscribed to that service. This will be an opportunity for you E-Mini traders to get your first S&P 500 trade. I will be trading the SPY. I believe there is an opportunity to make some money on the long side, but risk is certainly growing that there could be a major market sell-off if this debt-ceiling issue spirals out of control.

Speaking of the SuperCycle trade… In our new “Growth and Income” managed account portfolio, we will be trading two-thirds of the portfolio using the SuperCycle technology for far more than just the S&P 500. 100% of the trades (other than for precious metals) will be traded using the SuperCycle trading methodology. If you want to learn more about this new portfolio (launches August 1 for account sizes of at least $100,000), please call the office and speak with Tammy or Tom.

What ‘Could’ Go Wrong…

Global rating agencies, such as Moody’s are on the verge of downgrading the US’s credit rating. I don’t really see a whole lot happening to the US per se, if this occurs (although to hear the government-speak, the world will come to an end), but, the ripple effect on virtually all financial institutions could be significant. Here’s why… The rating agencies believe, with justification, that no financial company can have a higher rating than that of the country in which they reside. This means that thousands of financial institutions can be downgraded. Many institutional and retirement funds are prohibited from putting money into firms without the top credit rating. This could mean that some funds would be required to sell their holdings in these financial firms and the entire financial industry could see a massive sell-off… maybe even a crash.

If the financial sector was to crash, is it not beyond the realm of possibility that other economic sectors would be shaken as well. There is a strong argument that a downgrade of the US’s credit worthiness could plunge the US back into a severe recession.

Do I think this will happen? No, but it is not beyond the realm of possibility. This is why I have cut the size of my trades in my managed accounts this week in half. I am reducing some risk by lowering the amount I plan to have in the market until this debt-ceiling issue can be resolved.

As the markets put the debt ceiling debacle in the rearview mirror, more than a few issues remain open.