Where the Fiscal Cliff is Headed

Stocks are doing better this morning after a rough week. The major indexes are up a little over one percentage point which can largely be attributed to positive remarks made by the president regarding negotiations over the fiscal cliff. Investors were largely overreacting last week, so a return in the right direction is to be expected. I haven’t pulled out of any of my holdings because I have faith that the extraordinary incentive for both political parties to create a deal will in fact lead to a deal. I believe that the Democrats will be able to use their power to increase taxes on the wealthy, and the Republicans are likely to go along with it. While this will not have a positive effect, it is better than taxes being raised on everyone which would throw us into recession.

While I remain optimistic in the short run that stocks will recover their recent losses when a deal is made, I am more pessimistic than ever for the long term. I listened to the San Francisco Fed. president and CEO who had some astonishing things to say. He claimed the sluggish US recovery is not actually sluggish and that it was to be expected given the scope of the meltdown. In addition, he cited car and home sales as evidence of a rapidly speeding recovery, and he believes home sales will play a large role in our nation’s recovery. Personally, I think he’s an idiot. 

Day After

Obama won a second term last night, and stocks gaped down at the opening bell. Personally, I believe the presence of a second term was the primary factor for the major indexes finishing the day almost 2.4% down. If the president's historical treatment of the business sector is any indication, businesses and US citizens could  have a tough road ahead. The fiscal cliff we face could come to fruition if parties can not agree, and the lack of certainty stemming from the vagueness and negativity of Obama's reelection campaign leaves a lot to be desired. However, I do believe stocks will close the gap from today at least partially, and I believe stocks will eventually build a rally for a month or so as the political season cools off and politicians wait to voice what they actually plan on doing.

I was relatively happy with my decisions yesterday. I pulled out of around 10K in holdings because I believed Romney would lose. I figured a very tight race, which the polls indicated, would go to an incumbent nine times out of ten, and some of the financial support Romney received, which was not the same for McCain, indicated he was favored by the business community. I reentered multiple stocks this morning including Emerson (EMR), which I believe is a great decision for stagnant growth, and CNOOC (CEO), which is too established and big to really do all that poorly in the near future.

Goodbye Starbucks

I had a relatively successful trading day today. I watched Starbucks stock creep up higher after the opening bell this morning, but it ran out of steam fast and coasted for a while. Upon analyzing the stock with some technical, I grew worried that SBUX would not be able to hold its current share, so I ditched it. I started off by selling the 79 shares I bought on October 18, 2012 at $51.1 for a $236 gain. I then sold the 49 shares from October 19, 2012 at 51.2 for a $236. And I know you must be thinking I made an error, but I really did sell both groups off for exactly $236 gains. Starbucks proceeded to develop a small rally which tumbled by the end of the day to a share price below what I sold it at. I am concerned for the health of the stock. A pullback may be coming. I could see no point in recent history when SBUX gapped up and then didn’t fill the gap.

I then went ahead and bought 26 shares of TCBI. The stock was down 2%, and I finished the day ahead 2% ($50ish). I also bought 67 shares of SYY at $30.46. It was down 3ish%, and my position was up about .5%. Both stocks have been consistently strong in the past, and I could not help myself to some bargain shopping. 

Who called it on Starbucks?

It is possible I am engaging in selective memory and not recalling a number of false reads on the market, but today, I was proven correct on my recommendation to go long on Starbucks (SBUX).

Every stock in my portfolio, except Starbucks, fell with the rest of the market. The major stocks indexes were all down around 1%, which essentially took back the gains acquired over this short trading week. The economy added jobs in October, 171,000 to be precise, but the expanding workforce drove the unemployment figure up to 7.9 from 7.8. To be absolutely honest, I am not sure if I would have interpreted the movement of stocks correctly if I had somehow acquired the unemployment figure before the public. I would have guessed financial analysts would have neglected the unemployment rate increase, because everyone knew the workforce figure has been artificially low for some time. I probably would have acted on that assumption rather than acting on simple market psychology. You learn something new everyday.

I was very surprised today when I logged into my account after looking at some of my stocks on Google finance, which were all down, and found that Starbucks had put my account in the green on its own. EPS came in at .46 Thursday afternoon, which beat the expected .45. The company increased the dividend, and the volume at 3-month highs sent the stock above its 50 day moving average. The gain of over 9% was especially groovy considering SBUX made up about 14% of my portfolio at the end of the trading session. I have big hopes over the next few years for Starbucks. A pullback is to be expected, but I do not intend to sell Starbucks in the near future.