Profits from a panic

The imbeciles in Washington are at it again. If it seems like the same old story with a different date then you’re not from the truth. On the menu this month is the potential for a government shutdown because of failing “negotiations” on the debt ceiling. Republicans in the House of Representatives, the controlling party, are trying to push through repeal of Obamacare or “de-funding” in exchange for passing an increase in the debt ceiling. This artificial event is meant to increase the amount of money the government can borrow to pay past debts. Failure to pass the increase would result in two things. First, the government would shut down, except for essential personnel. And second, it could result in a further debt downgrade on US Sovereign debt.

Ho hum, who really cares? Well, Wall Street cares, sort of. They like any excuse to artificially talk and walk down share prices. Why? Because they know Joe Public will start to panic as information circulates about social security check delays, cut backs in services, National Park closures etc.. And this panic will lead to selling of stocks which might create a buying opportunity as stocks are likely to rally after an agreement is reached. So, why not pile it on and try to create and even bigger panic? One that allows for really cheap prices and presses the politicians into passing an agreement sooner. There’s nothing quite like a financial panic to make the folks in DC, who have a massive vested interest in the stock market, to do what Wall Street wants.

The funny thing is that the average investor is currently under-invested and that’s where the real colors shine through. Wall Street will create this artificial panic for no reason other that to enrich their own wallets and there is no reason why you shouldn’t climb aboard before the rally ensues.

So, where do you look to buy on this downturn? There are quite a few sectors and stocks that are showing excellent upside momentum. This momentum will be temporarily stunted by the antics out of DC and that will provide you with the ideal entry points for significant short-term gains when the situation turns.

Now, you’re probably wondering how I know the situation will turn. Well, this is a no brainer, really. The Republicans do not have the power to sustain an extended shutdown – if one even occurs. They are looking to be re-elected the next time around and forcing the populous to endure the pain and panic associated with a stall in economic growth, a shutdown of government services is not a good start.

What’s even more telling is that the US Senate and the Republicans in the Senate have already caved in and submitted a bill that removes the provisions that are would cause a shutdown. The House can force a shutdown, but it would be folly on their part as the end result would still be a resolution to re-start government. And, there is also a provision that allows the President to unilaterally avert a shutdown. However, that is a nuclear option that he doesn’t want to use, as it would set a future precedent. It’s in his best interests to allow the Republicans to take the heat and further reduce their chances to retake a majority in the government.

The sectors that will rebound hardest and fastest will be in the technology arena. Within that sector three names stand-out as top performers in recent months and these three are showing the strongest momentum: Facebook (FB) the social media giant is leading the way up of 100% in the last quarter. Second is Linked-In (LNKD) which is the business version of Facebook. And finally, Netflix (NFLX), the online-video on-demand service which has seen its share price increase 6-fold from low to high over the past 52-weeks. All are trading close their highs right now, but all will be affected in a panic sell and that is where you should look for quick gains on a rebound.

To your wealth,

Banker X.