December 16

Before the Bell – Wednesday’s Taper – Boeing (BA) vs. Union

Barron'sBarron’s View 2014 – I hate just being one of the crowd but I guess that’s my fate. Barron’s cover article this week focused on Wall Street Strategist predictions for 2014. It looks like consensus gives a high probability of the S&P 500 being up about 10% from current levels. That pretty much matches my own prediction when I told both CNBC’s Bill Griffeth and Fox Business News’ Gerri Willis my base case is for the S&P to be up 7% next year in line with earnings growth. (The market has pulled back about 2% since my call so up 10% is close enough)

I went on to say that we have an outside chance of expanding the multiple to 18X putting my bull case prediction at 2100 which coincidently matches the highest prediction of the 10 strategists interviewed by Barrons. I guess I’m number 11. My bull case is based on the U.S. continued march toward energy independence. I talked about my call in Friday’s article “OPEC (The Emperor Has No Clothes).” Eliminating the dependency on Mid-East oil should be an economic imperative. There are very few on either side of the aisle who disagree with that statement. The path we take to get there, is the center of the debate.

SPX 2013.12.16Wednesday’s Taper? – The Taper has dominated investor psyche for most of 2013. How could it not? It’s a rare day to turn on your favorite financial broadcast without at least several segments devoted to the taper and the potential damage likely to ensue. My sense is that the majority of investors are convinced it will take place within the next few months with about half of those convinced the Fed will act as early as this week. My own call which I’ve made on several networks has been that the Fed will make their move sometime late in the 1st quarter. One data point that may keep them from acting this week is inflation. The Fed is targeting 2% yet in October it came in at only 0.7%.

The taper spells the beginning of the end of a massive $85 Billion per month bond buying program which I believe should be viewed in a positive light. It is the first steps toward monetary normalcy.

John Schoen Economics reporter for CNBC points out the most likely reason for the Fed to start its taper. “It may no longer be working. Despite the trillions it’s pushed into the system, much of it hasn’t reached the broader economy.”

December, normally a positive month for stock investors has had a rocky start. Fear of this month’s Fed meeting is the likely culprit. The $64,000 question investors want answered is; “have we seen the top of the market now that the Fed is about to take their foot off the accelerator.” There are some who believe QE is the ONLY reason markets have marched higher. They give no credit to improved corporate health, cash heavy balance sheets, a country that is starting to go back to work, not to mention a banking system that is off life support.

Regardless of whether the Fed acts this week or a few months from now, it’s coming. If you believe monetary policy is the only support for stocks then you should exit immediately. Even if the dreaded taper doesn’t occur this month there should be a statement giving strong hints to the coming exit.

The likely knee jerk reaction of a Fed move this week will be to sell stocks. If that happens I believe there will be buyers ready in the wings to support the fall. Technical traders will be waiting with wallets open somewhere between SPX 1747 and the 50 day at 1761.

BA Weekly 2013.12.16Boeing (BA) vs. Union – Talks have broken down once again between Boeing and its largest union. The fate of where the final assembly of Boeing’s popular 777X will be built, hangs in the balance. Airlines are shifting to fuel efficient light-weight aircraft so the 777X with its carbon-fiber wings slated to go into service in 2020, is expected to be in high demand.

The biggest stumbling block is Boeing’s position that the current defined benefit pension plan be capped in 2016 with the company shifting to a 401k plan.

In recent weeks Boeing has been holding something of a beauty contest with states across the country making proposals to attract the aerospace maker and the jobs that come with it. Despite recent better than expected employment numbers, high paying jobs are still tough to come by. Governors know that with jobs comes tax revenue, the life blood of any administration.

The talks appear to be at a critical stage. Washington Gov. Jay Inslee said; “I have become increasingly concerned that we are at a perilous point in our effort to bring the 777X to Washington State.” He has urged the machinists union to put the current offer to a member vote. According to the WSJ many union members want to vote on the deal regardless of their leadership’s stance.

If the union holds to its current position that the defined benefit plan be continued, they will lose the fight and the jobs they hope to retain. Defined benefit plans which offer a guaranteed benefit in retirement are rapidly going the way of the Dodo bird. No company can plan for its future if they have an unknowable pension cost. Defined Benefit Plans were a contributing factor in many large corporate bankruptcies. One by one fortune 500 companies are making the switch and I’m certain Boeing will add their name to that list.

The 3 year weekly chart shows Boeing’s big break out at the beginning of 2013. It is the longest running position in Alpha Select accounts. The stock is extended and eventually we will see some reversion to the mean. Fundamentally we still want to own this name and will be willing to take some give back for higher returns in the long run.

David Nelson 2013 TV Highlight Reel (2 min) Click Below

David Nelson in Credits