The Day Ahead: Falling From a High

 | Jul 12, 2013 | 8:00 AM EDT
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Believe it or not, your favorite finance guy next door has seen people do crack. No, it was not a couple of hobos standing dangerously close to the subway tracks.  They were rather well-educated, clean-cut folks who fancied that getting high on the golf course would preserve their single-digit handicap (I was a caddy at a private golf course, and saw tons of intriguing acts).

The folks in question emerged from the bathroom rocking a drippy nose, and actually went out and played amazing golf for a few holes. Then BOOM, they came off their crack high and gave back the birdies and pars into the final five holes.

There is a comparison handy here with financial markets. While I certainly don't think we will head toward the March 2009 lows (I am not high!) when the Fed begins to taper, this week has programed a bunch of clocks to go off inside my brain as markets round the corner into 2014.

They include:

  • Any, and I mean any, reference to slowing the pace of monthly bond buying by the Fed Chairman Ben Bernanke will be a signal to sell stocks unless macro conditions are silly positive as to imply further, sustainable green shoot growth.
  • As a money manager, you are now forced to chase performance early on in the third quarter of 2013 in areas that took a beating on rate creep (homebuilders, emerging markets). Good thing I left my buy rating and $40+ price target on Toll Brothers (TOL) intact throughout the lunacy period.
  • Be on the lookout for a pullback in consumer discretionary names (saw a bit of this on Thursday) that fell out of favor as rates were advancing.
  • Bernanke has to be cognizant that he has failed mightily at communicating an exit strategy for QE. For this reason, he may believe staying at the helm of the Fed is his duty to society. He got us into this crap; it rests on his head to dig us out. This would obviously be bullish for stocks given Helicopter's tendencies.
  • Companies should take advantage of a step down in rates once again to issue debt and to acquire the businesses they have been studying from afar (such activity in the third quarter is bullish for stocks).

The Highlight Reel

QE vs. Food Stamps

Family Dollar's (FDO) earnings really disturbed me, as did Wal-Mart (WMT) acknowledging this week that at 40 hours a week its typical worker hauls in $27,000 a year before tax. I won't blame the Bernanke Fed for establishing a permanent underclass, which goes to Greenspan. But for its balance sheet expansion orgy, shouldn't the Fed be 
receiving more economic bang for the buck? See below.


 What Will Happen at RadioShack (RSH )?

  • RSH survives holiday 2013 as the company has $820 million or so in total liquidity, meaning suppliers will ship it junk to be sold today.
  • It raises debt or equity financing, quickly, to alleviate supplier concern and ensure survival in 2014.

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