Sell Stocks on Likely January Ill-Effects

Stocks were up stupen- dously in 2013, and the gains were widespread, so I think this year we could feel a void as a result. The January Effect may instead yield the ill-effects of a previously stellar market performance. With little or no fuel to sustain stock buying, the market will more likely see the selling of shares on pushed forward tax gains in January. The actionable advice here, therefore, is to sell stocks as I also previously suggested in the article, Sell the SPY on High.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Chart at Yahoo Finance

The charts of the SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) all show the amazing performance of the stock market this past year. The gains were astounding, as you can see via the table below. Netflix (Nasdaq: NFLX) led all S&P 500 stocks higher, appreciating roughly 298%. The best performing stock sector was the Consumer Discretionary Sector, as evidenced here by the 41% gain of the XLY security. Still, the worst performing sector also rose this year. It was the telecom sector, and the performance of the iShares U.S. Telecommunications ETF (NYSE: IYZ) still managed 22.5% appreciation.

Security	2013 Performance
SPDR S&P 500 (SPY)	29.7%
SPDR Dow Jones (DIA)	26.7%
PowerShares QQQ (QQQ)	35.1%
Consumer Discretionary Sector SPDR (NYSE: XLY)	40.9%
iShares U.S. Telecommunications ETF (NYSE: IYZ)	22.5%
Netflix (NFLX)	297.6%

That’s widespread appreciation, and it portends a less than stellar January, if not an outright downslide. Just 38 stocks from within the S&P 500 depreciated on the year. So where then will the funds from tax loss selling flow to fuel a January Effect? I believe that whatever fuel exists will be exhausted early in January, or has already been exhausted in late December’s Santa Claus Rally.

Thus, stocks are in my opinion lacking positive seasonal catalyst in January, and given that stock market paper gains are aplenty, tax gain profit taking might occur. Such gains taken now instead of the end of 2013 allow investors to pay taxes in 2015. It’s a cash flow factor that leads me to suggest that the stock market is more likely to decline in early 2014 than it is to rise. Thus, I suggest investors act preemptively and sell the market and especially richly valued shares like Twitter (Nasdaq: TWTR) now. I suggested as much about Twitter and also about Alcatel-Lucent (NYSE: ALU) in recent articles published elsewhere.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Mega Millions Jackpot Winner

If you just won the Mega Millions Jackpot of some $636 million, you’re going to need a place to invest it. Given the gains in stocks this year, with the SPDR S&P 500 (NYSE: SPY) up 27.6%, you might have the inkling to select stocks or an index fund for investment. Based on the historical performance of stocks over the long-term, that probably makes sense, but I think there’s good reason to avoid investing in the stock market now, at least for the near-term. Rather, I would suggest a good portion of your lottery winnings be invested in real estate, including both residential and commercial property.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Buy Real Estate

Stocks, bonds, a yacht, a Lamborghini or a trip around the world... ah the options for your windfall are limitless if you have just won the humongous Mega Millions jackpot. But of all the options available for parking some dough for safe keeping and for income and growth too, I favor real estate.

I’m a stock picker at heart, so I would buy individual stocks of course, but I would not buy the market here at the start of Fed tapering and eventually the end of easy money. Stocks will demand continued solid economic progress moving forward and interest rates are likely to increase, which means a higher cost of capital for companies. In other words, the once low-bar for economic value creation will be raised a bit. Stocks are bound to backtrack, especially given their gains this year, unless economic developments astound. Stocks have come a long way and put up awesome year-to-date performances, so profit taking won’t take much of a catalyst here.

Security	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	+27.6%
SPDR Dow Jones (NYSE: DIA)	+23.9%
PowerShares QQQ (Nasdaq: QQQ)	+32.3%

When interest rates rise, bond prices are pressured. Now the Fed is doing its best to not significantly impact bond or stock values by taking it slow and making sure everybody knows it will be data driven. Still, bonds are not my cup of tea, and given the danger of itchy trigger fingers among other investors in the securities because of the dangerous rate environment, I’ll steer clear here as well.

Gold I like, and its relatives are not too bad either for a short to intermediate term taste. I’m speaking of the SPDR Gold Shares (NYSE: GLD), iShares Silver Trust (NYSE: SLV) and the MarketVectors Gold Miners (NYSE: GDX). However, I would still not buy gold now, assuming Comet ISON fragments aren’t on the way to disrupt Christmas; in that case, I would buy a lot of gold. We have to assume normalcy here I suppose, and in an environment where the Fed is cutting back on its easy money policies, however slowly, precious metals remain out of favor. That is why we have seen the decline that we have in these securities and the spot metals over recent months.

So what do you buy then? I say real estate. Sure rising interest rates threaten capital appreciation and price gains, but they also could limit the ability of others and ourselves to buy real estate in the future. I think it’s of utmost importance to have your own shelter now that it is still relatively affordable and while financing costs are still favorable. Though, given the Fed’s featherweight foot braking, mortgage rates might not spike as high as investors once feared.

The Fed does not want to disturb the recovery of the housing market, and so will monitor the situation as it tapers back asset purchases, including those of mortgage-backed securities. It’s also mindful of the economy, obviously, and so should not impede commercial real estate opportunities nor demand for residential rentals. And even if it does, I would much rather hold hard assets with the ability to reduce rent if necessary to keep them filled and earn income than hold paper money that I’m not sure will always have value.

Does that mean real estate relative stocks are also worth holding? For that derivative investment I would look first to the REITs like Education Realty Trust (NYSE: EDR) with its 5% dividend yield and 11.5% projected long-term growth; Apartment Investment & Management (NYSE: AIV) with its modest PEG ratio, good growth and 3.7% dividend; Health Care REIT (NYSE: HCN) with its focus on senior living and health care properties; and of the homebuilders, just a name like Toll Brothers (NYSE: TOL), which possesses pricing power; and Annaly Capital (NYSE: NLY), the mortgage REIT I think will benefit as the Fed slowly exits the MBA market. Obviously, Bank of America (NYSE: BAC) continues to benefit from Fed mastered Goldilocks rate and economic management. I understand the Mega Millions jackpot will be divided by two winners, but it’s still significant enough to put to serious and good use; for that, I suggest real estate.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

TUESDAY'S RUNDOWN: On Fed Clock Countdown

We’re on Fed clock countdown until tomorrow afternoon, when the Federal Reserve’s FOMC will issue their latest monetary policy. Investors are hinged here on the Fed taper and whether it happens or not; in other words, whether the Fed begins to slow down stimulus efforts for an economy that seems to not need it so bad based on data. What’s working against that call for tomorrow is the fact that holiday shopping matters a lot for this economy, and so the Fed may not want to risk disturbing that with a sudden stock market drop. Follow us at the blog, and also, please find a link to our latest write-up on Amazon.com (Nasdaq: AMZN), published exclusively elsewhere.

Tuesday’s Market Rundown

Market ETF	December 17	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	-0.3%	+25.5%
SPDR Dow Jones (NYSE: DIA)	-0.1%	+21.6%
PowerShares (Nasdaq: QQQ)	-0.0%	+31.0%

Stocks are losing ground again today, given the price increase found in the Core CPI this morning. It’s all the more reason for the Fed to begin tapering.

Economic Events

ECONOMIC REPORT SCHEDULE
Economic Data Point	Prior	Expected	Actual
TUESDAY
FOMC Meeting Starts
Consumer Price Index	-0.1%	0.0%	0.0%
-Core CPI	+0.1%	+0.1%	+0.2%
Current Account	$-98.9 B	$-96.6 B	$-94.8 B
Housing Market Index	54 R	55	58
ICSC Weekly Store Sales	-1.6%		+4.8%
-Year-to-Year Pace	+1.5%		+2.0%
Redbook Store Sales	+2.6%		+2.9%

 -R symbolizes “revised”

The Core CPI figure reported today showed prices up 0.2% when excluding food and energy; it was exactly what market enthusiasts did not want to hear. The FOMC monetary policy meeting has begun, and tomorrow the Fed will let us know whether it will begin tapering asset purchases. Over the last few weeks we learned that unemployment fell to 7.0%, the level the Fed had tagged for slowing tapering. Now today we hear inflation is flirting with us. Bloomberg News ran a survey of economists on December 6 showing that an increased percentage of economists believed the Fed might begin tapering tomorrow (34%); that was up from the November poll showing just 17% in favor. The Fed has certainly given us enough time to digest the possibility that tapering is coming, so it could come at any time now.

Homebuilder sentiment improved according to the survey for November. The Housing Market Index increased to a mark of 58 from 54 the month before. I doubt builders are thinking much about how tapering could raise interest rates, so I would not read too much into this enthusiasm. It’s probably based on the latest gains in New Home Sales, and those could very likely be revised lower. As expectations for the taper meet improved economic data, at some point there should not be much lasting impact to rates. However, mortgage rates are especially vulnerable, because the Fed has been buying mortgage-backed securities, an action that specifically supports low mortgage rates.

Retail sales data picked up on a year-over-year basis this past week. Weather can play a role in this figure, but in the coming two periods, last minute shopping will make this data point clear and likely confirm a strong shopping period overall. I’ll have more to say about the retail industry soon, because an overall gain does not necessarily spell good news for your favorite retailer.

Overseas Markets

EUROPE	CLOSE	ASIA/PACIFIC	CLOSE
EURO STOXX 50	-1.2%	NIKKEI 225	+0.8%
German DAX	-0.9%	Hang Seng	-0.2%
CAC 40	-1.2%	S&P/ASX 200	+0.3%
FTSE 100	-0.5%	Korean KOSPI	+0.2%
Athens ASE	-0.0%	BSE India SENSEX	-0.2%

International markets have caught the Fed watch disease and will even exaggerate the movement of the U.S. market it seems over the next day or two.

Commodity Markets (1:00 PM ET)

WTI Crude	-0.1%
Brent Crude	-0.9%
NYMEX Natural Gas	-0.7%
RBOB Gasoline	-0.2%
Gold Spot	-0.8%
Silver Spot	-0.5%
COMEX Copper	-0.1%
CBOT Corn	+1.2%
CBOT Wheat	+0.3%
CBOT Soybeans	+0.7%
ICE Cocoa	-0.7%
ICE Sugar	-1.5%
ICE Orange Juice Conc.	+0.3%
CME Lumber	+0.0%
CME Live Cattle	-0.1%

Commodities are mostly coming down on expectations of a stronger dollar. Agricultural prices are very likely suffering due to this year’s weather trends. Note that American derived corn, wheat, soybeans and orange juice are higher today on weather, while foreign found cocoa and sugar are lower on the stronger dollar outlook.

Corporate Events

Earnings season will only grow quieter as we near the close of the year. The activity list is hot, though, with many stocks marking big gains and losses today.

HIGHLIGHTED EPS REPORTS
Company	Ticker
TUESDAY
Sanderson Farms	Nasdaq: SAFM
Huntington Bancshares (DIV)	Nasdaq: HBAN

MOST ACTIVE STOCKS
BIGGEST GAINERS	% Gain
Methes Energies (Nasdaq: MEIL)	+57%
KKR Financial (NYSE: KFN)	+29%
XTL Biopharmaceuticals (Nasdaq: XTLB)	+27%
LightPath Technologies (Nasdaq: LPTH)	+22%
iRobot (Nasdaq: IRBT)	+17%
Broadwind Energy (Nasdaq: BWEN)	+14%
Stereotaxis (Nasdaq: STXS)	+14%
Puma Biotechnology (Nasdaq: PBYI)	+13%
Rick’s Cabaret (Nasdaq: RICK)	+12%
Kopin (Nasdaq: KOPN)	+12%
BIGGEST LOSERS	% Drop
Fiserv (Nasdaq: FISV)	-50%
Medidata Solutions (Nasdaq: MDSO)	-50%
BorgWarner (NYSE: BWA)	-50%
Targacept (Nasdaq: TRGT)	-31%
CombiMatrix (Nasdaq: CBMX)	-21%
FuelCell Energy (Nasdaq: FCEL)	-21%
Rockwell Medical (Nasdaq: RMTI)	-20%
Dynasil (Nasdaq: DYSL)	-17%
Kingtone Wirelessinfo (Nasdaq: KONE)	-18%
CGG (NYSE: CGG)	-16%

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Real Estate Stocks' This Week

The data has continued to show up positive for the real estate relative stocks, but the current week provides an important event that should drive volatility in the group. Which way the stocks move depends entirely on the Federal Reserve and whether it begins to taper back asset purchases or not. So what should investors in these stocks do? They should do the same thing I’ve been telling them to do for some time now, and avoid the sexy near-term catalyst for trade, save for the very speculative investors, who may bet on volatility.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Real Estate Stocks

First a Look at Last Week

Real estate relative stocks had a relatively tough week last week, but it started out well enough. The path of the group ended up in about the same place as the broader market by the close of the week, but it took a wild ride to get there. The reason for it all was the same, trepidation about this week’s Federal Open Market Committee (FOMC) monetary policy meeting and the possibility of tapering of Federal Reserve asset purchases.

The economic data was positive for real estate relatives last week, just like the week before. There were no major regular economic data points published, save the Mortgage Bankers Association’s Weekly Applications Survey, which showed an increase in activity that followed the holiday period lull that preceded it. Because of that calendar impact and despite the seasonal adjustments made by the MBA, and given the time of year generally, I do not think you should follow this data point too closely now.

The Retail Sales Report for November was published last week, and it offered some evidence of strength for the real estate sector. Within the report, we saw a 1.8% month-to-month and 5.3% yearly increase in the sales of building materials stores. Also, furniture and home furnishing stores marked 1.2% monthly and 9.7% yearly growth in November. Peter Lynch taught that activity in the housing industry would trickle down to the Home Depot’s (NYSE: HD) and Pier 1 Imports (NYSE: PIR) of the world. That seems to be happening, and offers reason enough to keep buying stocks like these. I expect in this case, this data offers support for continued growth in housing as well, due to the slow slug recovery in process and the distance it still has to go. There’s just one problem, though, and it could come into play this week.

Chart at Yahoo Finance

This Week

As you can see by the movement of the SPDR S&P 500 ETF (NYSE: SPY), stocks generally took a dive starting on last Tuesday, when the media and investors seemed to refocus toward this week’s FOMC monetary policy meeting and announcement. The coming meeting will include the quarterly forecasts of the Fed along with the chairman’s press conference, so it’s a big one. Perhaps then, given the steady flow of improved economic data over the last several weeks, it might also include the beginning of Fed tapering back of asset purchases. That’s something investors, especially those invested in real estate relative stocks, have high concern about.

If the FOMC does announce a slowing or ending of asset purchases this week, despite the long anticipated event, I expect interest rates will rise nonetheless. As that occurs, mortgage rates should also increase. Some would suggest that such an occurrence would drive a near-term boost in the real estate market, and that did occur over the last few months in my view. However, considering the time of year, and the nastiness of the weather so far (winter has not even begun yet), I do not see that happening over the next few months.

What this means for real estate stocks is a tapering of capital investment in them, and probably selling in most of the group. Bank of America (NYSE: BAC), the nation’s most important mortgage lender, should likewise be impacted. Banks benefit from the steepening of the yield curve, but those operating heavily in housing will see special drag from any impact high mortgage rates could have.

I expect the home builders like PulteGroup (NYSE: PHM) will have a spring season slowed a bit by higher rates, but much of this hinges on just how robust the economy really is. If the taper is coming for good reason, then higher rates might still be affordable for an increasingly employed nation.

As far as the mortgage REITs are concerned, I believe that while the share prices may dip along with the rest of the group this week, such a decline would represent a buying opportunity if recent economic trends hold. The market may understand this finally, given Annaly Capital’s (NYSE: NLY) gains last week, which contrasted against the decline of the group and market. Less competition for asset purchases means better pricing for buyers like Annaly and American Capital Agency (Nasdaq: AGNC). If housing continues to expand and the economy continues to improve, Annaly will operate in a better business all around, though still face higher costs of funding its operations on the way to normalcy.

So, in conclusion, the week ahead poses a threat to real estate relative stocks. However, if the Fed refrains from tapering, the party is on for the group this week. So what should investors bet on then? I would not put money to work at either end of the dangerous event, save perhaps a play on volatility, buying both call and put options. For the real estate stock investor, it’s been time to take money off the table for some time now. For real estate asset investors, it’s been time to buy property for some time now. That advice holds this week, in my view.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.