Tables Can Turn

Excerpt: With QE3, the Fed is adding even more cash to power that trend. The first settlements of the new MBS purchases took place in the week of November 14-20. Too little time has transpired for the effects of that to start to be seen. The next round of cash settlements take place from December 12-20. That could show up in the December data, with a bigger impact in January.

This is activity that is sustained only by increasing government debt, and only as long as the Treasury Ponzi remains intact. But it does remain intact, and it’s resulting in steady gains in employment, including full time employment over the past year. The game should continue until the Fed picks up the marbles or until the other players run out of chips. That’s unlikely as long as some players are running away from the European casino to play in the US market, while either the Fed or ECB continues to pump liquidity into the system.

I then agreed about the impact of QE. The law of diminishing returns applies. But we really don’t know if QE3 is working, or if the impact is diminished or not because the cash is just beginning to hit the street. It’s far too early to say its impact is materially diminished.

In addition, the conventional wisdom that the banks are just sitting on reserves and not lending is just flat out wrong.

Bank Loans – Click to enlarge

What are some stocks that are out-of-favor and much despised today with the chance to be heroes in 2013?

1. Agricultural:  Potash $39.52 (POT) and Mosaic $53.86 (MOS)
2. Health-Care:  Express Scripts $53.99 (ESRX) and Lab Corp $84.78 (LH)
3. Discount Retail:  Kohl’s $44.09 (KSS)

We are already holding POT, MOS, ESRX, LH and KSS in the Virtual Value Portfolio. Paul is increasing the allocation for POT to 5% – in this case, adding 51 shares. (See also: Become A Legal Holder Of POT.)

Here’s a trade setup on Etablissements Delhaize Fr (DEG, $36.80), a Belgian grocer yielding 5.88% at Friday’s close. DEG has been in an overall declining channel since early 2004. It hit channel support and an important long term support/resistance level a few months ago. That low has held, and a possible double-bottom has formed with an upside target in the $55 area on a conviction break over $43. Given the strong dividend, low debt, and decent looking fundamentals, we may well see a return into channel resistance in the $75-80 area over the next year or two. (For more details, read There is No Spoon)