Congress Saved Us!

Of course the title of this blog post is sarcastic. You all know me better than that.And if you are sick of reading about the fiscal cliff, just skip to the bottom two paragraphs.

I don't know who to credit but somebody said that the opposite of PROgress is CONgress. How can so many individually accomplished people become such a collective failure? Forget that it took months to even try to make a deal on the fiscal cliff but the deal they worked out did very little. And as usual the unintended consequences of trying to protect the middle class from tax increases did exactly the opposite. Taxes on everyone who actually pays taxes went up.

No, tax rates were "reduced" back to the previous Bush rates that expired. Now everyone is a tax cutter. Vote for me! I cut your taxes!

But look at your next paycheck and tell me what you see. Payroll taxes are back. And look at your brokerage statements. Investment taxes are up for many (not all). And don't forget not to die because that rate went up too.

This takes hypocrisy a whole new level.

Lewis Black once said,

"The only thing dumber than a Democrat or a Republican is when those pricks work together. You see, in our two-party system, the Democrats are the party of no ideas and the Republicans are the party of bad ideas."

I disagree. It is Democrats with bad ideas and Republicans with no ideas.

We are in deep doo-doo and congress does not have the incentive to fix it. Patch it, yes (vote for me!) but fixing it means saying "no" to people. We need the fiscal cliff. We need China to stop buying our bonds. We need an oil shock. We need  a food crisis. We need the economy to tank.

Yes, we need any or all of those things. Yes, they will be painful. But the only way an economy can heal itself is to go through the steps and the longer we put it off the worse it will be. Government cannot heal an economy. Government only gets in the way like bad medicine with killer side effects. The road to hell is indeed paved with good intentions.

Reflections

It's been a wild and crazy year, hasn't it? Of course, we can say that about every year. True, some events this year were rather horrific but overall my view is that this was a year marked by inflammation.

Inflammation? Taking a page from a late night infomercial, it does seem that we were all mostly irritated this year from the news. Washington was a mess. Fiscal cliff, dairy cliff, ports cliff, election cliff, Supreme Court and ObamaCare, Fox vs MSNBC, here a pain, there a pain, everywhere a pain, pain....

Inflammation is the body's response to injury. I bet mental inflammation is the mind's respond to all the discord we've seen this year. It made my head hurt, that is for sure.

But let me bring this back to the reason anyone actually reads my posts and social media stuff - the markets. This was a year where good news was good and bad news was good because it would prompt the Fed to print more money. And oh how it printed! And Super Mario in Europe could not stand in the shadows as Ben "Chubby Checker" Bernanke twisted the night away. Stocks love free money and rallied. Funny how most of this printing took place just when technical breakdowns were imminent.

But then Jackie Paper grew up and Ben the Magic Dragon's last bellow in September marked the top in the market. Stimulus tipped over its point of diminishing returns as investors finally got wise.

Where do we stand now? Will technical analysis ever work again? Who shot JR?

It seems that with the market's awakening to the meddling, charts seem to work better. But they are still not perfect and one reason is that so many people are using them that many try to game the system. They look for triggers that will sway the crowd and they act the other way when it is shown the crowd is wrong. False chart breakouts. Moving average cross whipsaws. Stuff like that.

I don't think charts will ever work the way they used to work although I still find great value in them. If you understand that the observation of an event actually changes that event then you can act accordingly.

For you physics haters, it is called "Heisenberg Uncertainty Principle" and it concerns measuring events on the atomic level. If you think about how we might measure something by looking at it and then realize that in order to look at something we need light and light particles interact with atomic particles so by shining the light we affect the event.

Let me digress. My 10th grade chemistry teacher told us that we could measure the speed of a horse on a racetrack by shooting marshmallows at it and see how the marshmallows were affected. The horse may say, "hey cut it out" but his speed would be essentially unaffected.

However, if you use bullets to try the same thing you affect the horse's speed all the way.

Clumsily bringing this back to charts, the more people that look at them the more they act on them and the less the charts measure the psychology of the market. They measure the actions of the observers and then become rather useless.

I still believe that charts work but again, not they way they used to work. Individual stock analysis, save for the handful everybody and their brother analyzes, works better than major index analysis. This year, try doing some bottom up analysis - the 500 stocks of the S&P 500 - to formulate an opinion instead of looking at the machinations of the S&P 500 itself. Try using more sentiment analysis. Look into the harder analysis such as cycles instead of trendlines.

Good luck to all in the coming year. Thanks for reading my tirades, digressions and sarcasm. I hope my incessant pop culture references gave you an occasional chuckle.