12/29/2012 fiscal football

Small Portfolio	XLU & IAU	16.18%
Sector	XLU	24.90%
Secular	IAU	7.46%
Large Portfolio	Date	Return	Days
RIMM	7/16/2012	62.62%	166
SEAC	9/25/2012	15.79%	95
CAJ	9/25/2012	12.59%	95
DDAIF	9/25/2012	4.36%	95
CFI	10/31/2012	24.18%	59
RE	11/26/2012	4.16%	33
GLW	12/3/2012	1.96%	26
CGX	12/12/2012	-1.66%	17
PAAS	12/20/2012	1.51%	9
OKE	12/28/2012	-0.21%	1
S&P	Annualized	2.67%
Small Portfolio	Annualized	9.94%
Sector Model	Annualized	15.09%
Large Portfolio	Annualized	25.68%

 

Rotation: selling GLW; buying STRA.

GLW (Corning) is an Electronics support company, specializing in LCD display screens.

STRA (Strayer Education) is, as its name suggests, in the Education industry.

So let’s take a step back from my “inflation” comment the other day.  Inflation generally implies demand growing faster than supply as the economy heats up and demand for raw materials drives up prices.  PAAS and OKE are certainly in various aspects of the commodity sector.

But when the model pulls the Education industry out of its hat, something is amiss with a pure “inflation” play.

Even worse, on Friday the sector model flipped (barely) from XLF to XLU – that is, from financials to utilities.

That’s not inflation.

If anything, it’s stagflation.  That bogeyman we’ve been hearing about for the past four years is peering over the horizon again like a perennial Kilroy cartoon we’ve all learned to ignore.  We’re certainly due for stagflation, but these sure thing bets are never a sure thing.  I’ll shrug my shoulders and follow the models into Utilities and Education if that’s what they call for. 

But we’re all at the hostage of Washington D.C. at the moment, right? 

Eh, no.

Regardless of what you’ve heard each side declare, this battle is not about the economy.  It’s about political power.  Coming to a budget and taxes agreement is a snap if that’s what you’re after.  You have the House pass a bill and the Senate pass its version, and then you reconcile the two before the President signs the compromise.  Math is EASY to average if you are interested in doing so.  Two and Four average to Three, and you move on.

So why all the trouble?  The President has a chance, if he plays his cards right, to destroy the Republican control of the House.  Right now polls show that 45% would blame a lack of compromise on the Republicans, and 30% on the President.  So the President is doing what I would do if I were him: every time the Republicans try to give him what he asked for the LAST time they talked, he moves his position and they have to start over.  He demands 800 billion until the House agrees, and then he demands 1.2 trillion until the House agrees, and then he demands 1.6 trillion.

No, seriously – go look.  You have to dig through the rhetoric and spin, but that’s basically what’s happening.  Lucy is pulling the football from Charlie Brown over and over again because Lucy isn’t trying to play football; Lucy is just trying to knock Charlie Brown out.  And as long as the polls show that people would blame the GOP, Obama will keep moving the football.

But what about the economy???????????????????

Oh, that.

Well, the President isn’t stupid.  Japan and Europe are in full blown recession and the U.S. leading / lagging indicators are confirming the ECRI estimate that we are ALREADY in a recession.  My sector model has been in bear market configuration for the past year and a half.  The market’s only been going sideways because of all the money Bernanke has been throwing from his helicopter.

So, if we are ALREADY in a recession, then an agreement with the House will just make Obama look powerless to save the economy.  Granted, he campaigned on that, but still… if we are going into a recession anyway, and the GOP can be blamed for it, then why not manufacture an impasse that would turn the House over to Democrat control in 2014?

I’ve said many times, and I’ll say again, President Obama may be a lousy President, but he is a MASTER campaigner.  He never stops the campaign long enough to govern, but that’s okay if your GOAL is the campaign.

Enjoy the recession.  It will happen no matter what happens in D.C. this weekend.  None of this show is about the economy at all.  It’s just about the next election.

Tim