Overview and Observation:
In order to improve final quarter and full year results on their balance sheets, institutions implement the "age old" program of "window dressing." With what’s available in the way of cash reserves, they buy up additional shares in existing positions to offset any "profit-taking" by investors after the recent record market gains. The application of free balances for this purpose leaves them with little defense against any early New Year long liquidation and/or profit-taking prompted by potential "overbought" conditions. The practice only applies to securities and not commodities where supply/demand factors determine market action. We believe any artificial support implementation is short-lived and suggest a yearend portfolio review. Taxes are based on yearend valuations and should the markets decline in the early weeks and months of the new year, the reduction of values could impact the ability to pay those taxes. We have been warning our readers against complacency and implore holders of large equity positions to establish strategic hedging programs.
We sincerely hope you "survived" the financial obligations of the Christmas holiday season and wish you continued health, happiness and prosperity for the remainder of 2013 and into 2014. Now for some actual information to guide our readers through the final trading sessions of the year……
March U.S. Treasury 30-year bond futures (CBOT:ZBH14) closed Friday at 128 and 8/32nds, down 8/32nds. Yields on Treasuries have been vacillating of late after the U.S. Federal Reserve announced it would taper its stimulus program. The obvious explanation is that they see an economic improvement no matter how slight and the minimal adjustment to the stimulus program would not cause too much effect in the marketplace. We view any improvement as a mirage and the effect of continued underemployment and unemployment will soon be felt in the overall economy. Another concern is the impact on costs from the implementation of "Obamacare," which has yet to be fully revealed. We continue to believe rates will be held at lows to prompt new home purchases but consumer credit availability is of a major concern to us. The idea of "borrowing from Peter to pay Paul" will at some point become problematic. We prefer the use of "strangle spreads," which may have to be adjusted from time to time. Markets will react to upcoming reports on pending home sales, the Dallas Fed Manufacturing Business Index, the Chicago Purchasing Managers’ Index, consumer Confidence and of course the continued report on initial jobless claims. We also look forward to the monthly jobs data.
The Dow Jones Industrial Average (CBOT:DJH14) closed Friday at 16,478.41, down 1.47 but added 1.6% for the week. The S&P 500 (CME:SPH14) closed at 1,841.40, down .62 but gained 1.3% for the week. The tech heavy Nasdaq closed at 4,156.59, down 10.59 points but also gained 1.3% for the week. The decline in weekly jobless claims can be attributed to the Christmas holiday but remains of concern. The weekly first time unemployed averaging 330,000 as well as the termination of some 1.3 million receivers of benefits will of course reduce spendable income and that impact is yet unknown.