From time to time we reach into our WSD Mailbag to address some key concerns from our loyal readers. And it’s that time again… With a twist.
Since 2012 is rapidly coming to a close, I’m fielding questions about what the future holds for 2013.
My hope? That my answers will be both informative and instructive… and ultimately profitable, of course.
Let me know if I succeed by dropping us a line at firstname.lastname@example.org.
While you’re at it, send us some fodder for a future WSD Mailbag column. Any and all comments, questions and biting criticisms are welcome. So cue up the Pat Benatar and hit us with your best shot!
Is the financial sector on the verge of another collapse? – B.R.
Not even close.
As I’ve shared before, the easiest way to track the threat of another financial meltdown is by monitoring credit default swap (CDS) prices. They represent the cost of insurance against a default.
And despite increasing worries and chatter about another collapse, CDS prices aren’t signaling any trouble at all.
In fact, prices continue to drop – recently hitting a new 52-week low, according to Bespoke Investment Group.
Your fear of Apple (AAPL) remains a miscall! Are you ready to change your mind and rate the stock a “Buy” for 2013? – M.F.
WSD Insiders are asking the same question…
My answer: Not just “no.” But “hell no!”
I get that I was early with my April warning that the tech icon’s stock was bumping up against Bernoulli’s law. But like I reiterated in July, an investment in the company carried “much more downside risk than upside reward potential.”
Fast forward to today, and such a stance is being confirmed.
This week, Apple dropped below $500 per share for the first time since February. (At one point, the stock was up 70% on the year. Now, it’s only up 26%.)
What happened? As David Greenberg of Greenberg Capital said, “Someone yelled fire in the theater where the hedge funds were safely booking their year-end profits – and as traders do, they will trample you trying to be first to get to the exit.”
Indeed. And there are likely throngs of investors headed for the exits.
At the end of the third quarter, more than 800 hedge funds and mutual funds reported that Apple was one of their top 10 holdings. I suspect that number will drop significantly when fourth-quarter numbers come out.
The short-term selling pressure isn’t the only thing working against the stock, either.
As Stephen Weiss of Short Hills Capital says, “While Tim Cook is a capable executive… his background is in procurement and engineering, not innovation.”
Or as I put it previously, “Buying Apple is a bet that the new CEO, Tim Cook, can execute on [Steve Jobs'] ideas… and that he can come up with a few more of his own.”
That remains to be seen.
So again, no, I will not join the 54 other analysts on Wall Street who rate Apple a “Buy.”
Call it defiance if you want. I’ll call it being a contrarian. And for good reason.
Heading into 2013, Apple still carries more downside risk than upside reward potential.
And I’ll gladly check back in on the stock a year from now to eat crow, if necessary. Will you?
What is the true story on the dinar? Is it ever going to be worth any real money? – K.F.
Nope. Not in 2013. Not in 2014. Not in 2015.
Catch my drift?
Here’s the real underlying question you’re asking: “Is the Iraqi dinar revaluation a hoax or not?”
And if we have to ask whether or not something is a hoax – or too good to be true – it usually is. And this is no exception.
As I shared with WSD Insiders over a year ago, everything I’ve read and heard about the Iraqi dinar “investment opportunity” smacks of a scam.
Moreover, I’m convinced that the only people destined to make gobs of money on the Iraqi dinar are the ones behind the seemingly shady operation. They’ll continue to do so in 2013, too. Why? Because there’s a new sucker born every day.
Do you really think higher taxes will force people to relocate to lower-tax states or countries? – S.Z.
Idle threats only apply to political contests. When it comes to money, though, people are dead serious. They vote with their feet.
Case in point: To the best of my knowledge, Alec Baldwin still hasn’t left the country as (reportedly) promised after George W. Bush won the presidency in 2000. However, French actor Gerard Depardieu has, indeed, fled his home country’s oppressive tax rates for Belgium.
So expect tax-heavy states like California and New York – where some Americans could conceivably be taxed at more than 50% – to witness a mass exodus of citizens.
From an investment standpoint, I’d be wary of municipal bonds in tax-heavy states, as any exodus only promises to exacerbate already-troubled state finances.
Instead, it might not be a bad idea to focus on bonds from Texas, Nevada and Tennessee – which are waiting with open (and untaxed) arms for new residents. High-end real estate in any of those states might be a good bet, too.
Who’s right? Bob Prechter’s “deflation then depression,” or Peter Schiff’s “runaway global inflation” and Jim Rogers’ “hyperinflation” – to quote just three gurus. – J.M.
In short, none of the above.
At least that’s what my crystal ball says. Then again, I’m only a second-rate guru, so my fortune-telling skills probably aren’t the most accurate.
Look, in all seriousness, the only thing that’s certain is this: We’re destined for some type of inflation in the years ahead. There’s no way to avoid it given the non-stop money printing by the Federal Reserve.
The problem is, all that funny money isn’t circulating widely yet. Heck, it’s barely circulating at all.
The latest figures from the Fed confirm that the velocity of the money supply (M2) remains at record low levels. Take a look:
And inflation’s not going to rear its ugly head in earnest until the velocity picks up. (FYI, you can monitor velocity here.)
While we wait for the inevitable uptick – and even when it hits – stocks remain one of the best hedges, based on history. So is the old standby, gold.
As I shared last Friday, gold-mining stocks look particularly attractive right now, too. So they’re like a double whammy of inflation protection. Thus, I expect them to rally mightily in the year ahead.
That’s it for today! Tomorrow I’ll finish up our 10 questions and predictions – one of which involves the bull market’s ability to continue into 2013.