It’s been a heck of a ride for the stock market since last Thursday. That day, around 2:30 p.m., the Dow Jones Industrial Average was slumping toward 15,500. Then the first rumors of a potential OPEC output-cut hit, and the market recouped about half of that day’s losses.
Market Roundup
Since then, it’s been a one-way trip higher. The Dow rose as high as 16,486 today — meaning we’ve tacked on almost 1,000 points in less than a week. That’s raising an intriguing question: Is this the “Big Turn?” Or is this just the next “Big Short” moment?
The bull argument is based on two ideas: 1) The European Central Bank has solved the crisis over there, meaning any losses in vulnerable financial institutions will be “contained” and 2) The OPEC deal to freeze output will put a floor under crude oil prices. There was also a bit of more positive economic news today: Industrial production rose 0.9% in January, while capacity utilization rose to 77.1%.
The bear argument is based on several alternate ideas. One is quite simple: There is no way the ECB has a handle on the disastrous situation in the European banking sector. These companies are losing money hand over fist, their profit margins are collapsing, and they’re going to get overwhelmed with losses on risky bonds and loans.
Some of the others I’ve heard, or put forward myself, include the following: The OPEC deal locks in near-record or record levels of output, rather than reduces it, and Iran refused to comply with it today, anyway. The U.S. economic outlook is deteriorating even as many foreign economies remain challenged.
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| The bulls and bears are facing off at a critical turning point |
And most importantly, from my perspective: The simultaneous, widespread unwinding of asset bubbles in everything from junk bonds to commercial real estate (CRE) to M&A/private equity/stock buybacks is too powerful for central bankers to paper over. That line of thinking got some extra confirmation from the Wall Street Journal yesterday, which talked about the multiple threats facing the CRE industry.
So the fundamental question comes down to which set of arguments are more powerful. If you believe the banking and oil woes are fixed, this could be a Big Turn higher. If you believe the woes I listed are far from over, then this is Big Short moment — a time where you add new inverse ETF or put-option positions before the next leg down.
I got very bearish on this market about 1,800 Dow points higher than we are now. And frankly, I haven’t seen much to change the big picture outlook. I can’t rule out a further oversold rally, to something like 16,900-ish on the Dow. But I wouldn’t go chasing it for more than a flip. Or in other words, I’m still leaning toward Big Short over Big Turn.
| “I’m still leaning toward Big Short over Big Turn.” |
But that’s just my take. What’s yours? Is a lasting turn at hand here? Or is the broad trend still lower? What supporting arguments would you cite for either view? Do you think financials and oils are “buys” here? Or is this another chance to get out at better prices – or re-load with fresh inverse positions? Hit up the comment section and let me know which way you’re leaning.
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Bank stocks and oil prices were already two key topics you were discussing online in the last 24 hours, too.
Reader Donald L. said: “The banking turmoil is NOT contained for the simple reason that the underlying problems are still there. Until the conditions of debt-servicing exceeding productivity, overspending by governments, and shrinking real income by consumers are addressed, the slide will continue. It’s simply a matter of monetary and fiscal physics.”
Reader Lifestudent38 added: “Jawboning will only serve to ‘contain’ the crisis in the short- to medium-term. However, this only extinguishes prevailing fires and fails to remove the box of matches causing the fires. As time progresses, more and more fires will appear until all is burned down, leaving only an empty matchbox behind.”
Finally, Reader Howard said: “Mario Draghi is a front man pretending the walls won’t come down, while holding back the dykes from collapsing. Regardless of what he says about bank strength since last time, their combined debt load has increased. If everything was great, then why aren’t interest rates at 4 or 5 percent?”
When it comes to oil, Reader Gordon offered this skeptical take on the latest OPEC proposal: “Anybody that would put any faith in a deal between Russia and the Saudis is dreaming. This is only round one and they are making a pitiful gesture to see if the market goes for it.
“But sadly, smoke and mirrors are no good. There is just too much physical oil out there, and that has to get used up first. This deal will do nothing to address this issue. American frackers are just sitting back waiting to for someone else to do the heavy lifting for them.”
On the other hand, Reader Jim suggested there may be something to this effort: “The fact these four producers have opened a dialogue is significant. This process is usually done incrementally. Further agreements could be made in coming months.
“I agree that it won’t affect current prices. But they have said they want to stabilize prices. Bumping along the bottom at around $30 a barrel will do the real damage to weak producers and soon to suppliers and services as well.”
Thanks for weighing in. These are incredibly volatile times in the financial and energy sectors, and the cycle of collapse-policy response-rally-renewed collapse is accelerating. That creates both risks and opportunities, and I’ll do my best to help you survive and thrive amid the gyrations. Also feel free to add your own comments to the discussion below.
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Apple (AAPL) has decided to fight a federal government effort to gain access to the data on dead terrorist Syed Rizwan Farook’s iPhone 5c. Farook and his wife shot up a state health-program office complex in San Bernardino, Calif., in December, killing 14.
The government has tried to access all the information on his phone, but has been unsuccessful. It sought and received a court order compelling Apple to help it crack the phone’s security features. But Apple is refusing, saying it would create a “back door” that would have widespread negative consequences for privacy.
Nothing like a $70-billion loss to make Japanese politicians leery about allowing more government pension-fund money to be invested in stocks. Japan’s $1.1 trillion public pension fund invests around $520 billion in stocks through outside-asset managers, and it wanted to do so directly. But that plan was just shelved for three years amid a backlash over recent losses.
I bring this up to you because sovereign wealth funds, central banks, and other public investors piled into stocks at or near the peak in recent years. That has left them nursing hefty losses, and inflows are likely to turn into outflows as a result. That, in turn, will put downward pressure on equities over time.
Canadian airplane manufacturer Bombardier Inc. (BDRBF) missed fourth-quarter earnings estimates, and said it would slash 7,000 jobs over the next two years. That amounts to around 11% of its workforce, and comes amid efforts to secure funding from the Canadian government.
Neel Kashkari is a former Goldman Sachs Group (GS) exec who gained notoriety for managing the TARP bank bailout program here during the credit crisis. Now, he’s the Minneapolis Fed president, and he’s advocating for potential breakups of the nation’s largest banks. The effort would face a huge amount of resistance in Washington and on Wall Street, so we’ll have to see if it gains any traction.
What do you think of Apple’s resistance to the government’s investigation? How about the latest large-scale layoffs in the industrial sector? Any thoughts on the idea of breaking up large banks to make the system more resilient to future bailouts? Share them in the comment section below.
Until next time,
Mike Larson
P.S. Next Tuesday, CNBC regulars Kathy Lien and Boris Schlossberg will be hosting their quarterly briefing for members of their Global Currency Investor wealth-building service.
In more normal times, these live events will be for MEMBERS ONLY. However, these are not normal times and this will not be a normal briefing.
It will be a solemn warning — and for some, a terrifying one — of the catastrophe now building in the global economy and the U.S. stock market.
It is vital that you attend this briefing. To make sure we can accommodate all of the viewers, we ask that you let us know you’re coming.
Simply click here to register, and you will be able to submit your questions for Boris and Kathy.
Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Do you use SDS to short?
Watch out for SDS. Like many inverse funds, it does not “track” inversely in the strict sense. It does not always monotonically decline when its inverse index, say S + P 500 increases, rather it tends to ocsillate, like an oversold/overbought indicator. It acts like a loaded spring, but may be propitious at present w the run up. A buy sometime in the next few days and a sell after the next fade would be a decent trade strategy in this index.
I am watching the 10-Year Treasury rate very closely. The rate was down to 1.64% after being at 2.25%+/- for almost all of 2015. Now the rate is up 18 basis points in a moved that is almost in tandem with the NYSE. It would appear that the large scale investors are looking for the mule that will pull the cart the fastest and the longest, (and possibly the cheapest). I would expect measured volatility during the next six months with the stocks and bonds riding the proverbial seesaw until one or the other collapses. I would be VERY careful where you put your investment and I would NOT go long tern on anything until after we find out what kind of President we will have.
Look out below!
Since current earnings do not even remotely support even a 12,000 DOW valuation, what has really changed since the DOW was over 18,000? A bubble is a bubble is a bubble. And, eventually ALL bubbles burst or deflate in a slower manner to the level of their value. Ed
So the Saudis agree with Russia to stabilize the price of oil. Didn’t the Nazis agree to “Peace in our time”, to quote Mr. Chamberlain, just before they moved into Czechoslovakia? Their ISIS brethren need help in Russia backed Syria, and the Sunnis have gathered 300,000 varied troops in northern Arabia for 18 days of “war games”. They would need a little time to get all their act together. Hmmm…
Looks like USA not involved in this. Obama did not announce it 3 months ago.
On the matter of this other developments of the day “Nothing like a $70-billion loss to make Japanese politicians leery about allowing more government pension-fund money to be invested in stocks. Japan’s $1.1 trillion public pension fund invests around $520 billion in stocks through outside-asset managers, and it wanted to do so directly. But that plan was just shelved for three years amid a backlash over recent losses.”, it would be interesting to know how much the outside-asset managers reaped from the Japanese public pension fund. … Perhaps as much as they do from John Q. Public here in the U.S.A. … I believe asset managers (i.e brokers et al) should work on a performance based system. If they loose money for you, they do not receive a commission and if they make money for you, they are rewarded with a scaled commission. … Skin in the game always provides incentive, otherwise huge bonuses go to underachievers!
If Japan wants to invest a portion of their pension funds in stocks, they should listen to Warren Buffett. He made a 10 year one million dollar bet with an outside Hedge Fund group that an investment in s S&P Index Fund would outperform a group of Hedge Fund Managers.
At the end of year 8 his horse is up 65% while the Hedge Funds are up 28%. A simple S&P index outperforms all these fancy Hedge Funds over time.
Good point. That would be a great law and would likely be possible to implement after the collapse.
In an election year where there are serious differences between the candidates, and the lead keeps jumping between people & parties, the only sure thing is uncertainty. Volatility is the only winner for 2016. Investing? Buy a little more of your long-term favorites on big dips, and mostly just keep your powder dry until the dust settles this November… and then watch out for the rotation during 1q-’17 as the funds reallocate for the new game in town. Trading actively? Be on your toes, and don’t hold anything for long. Oh, and good luck to you!
Been mostly cash 2yrs…10% common stocks….bond yields crushed by fed. Stocks.as the only alternative are a other fed bubble…no compelling place for a conservative e 63/yr old to put money that’s worth the risk!!
I notice that many REITs, MLPs, BDCs, and other investment companies stock prices have fallen sharply, even as they often report earnings that support dividends of over 10%, even 20%. This can’t stand. Either their earnings must suddenly drop sharply, killing those big dividend payments, or the stock prices must recover to bring P/Es and dividends into more rational levels. In a generally deflationary environment, you know which I think will happen.
It’s confusing for sure. My primary concern about the so called end of oil lower costs based on this new OPEC (incomplete) deal is the freeze would effectively lock in the price at $29 and I think once the US oil companies and the investing crowd understand this it could lead to an even lower low. I’m waiting this one out for now allowing either a sustainable Bear or a true Bull to rear up and expose themselves.
No oil production agreements, should such be negotiated, will last in this deflationary environment. Too many countries are simply too hungry for cash to adhere to such agreements. They will cheat and very soon everyone will realize that the ‘agreements’ are not worth the paper they are written on.
Half of Iraq is occupied by ISIS and the government is very unpopular. Venezuela? What can add? Libya trashed. Nigeria is broke and fighting Boko Harum. These oil producers are on the brink. Warren Buffet just bought 26,000,000 shares of Kinder Morgan (KMI). Jim
remember when i said all this would happen?
He also added to his Suncor (SU) position as well. Jim
russia, iran, saudis, etc have a meeting of the minds? you really believe that? charlie sheen is giving up hookers.
maybe warren wants that 3% dividend. guaranteed when a company is worried about sellers.
buffett’s railroad is in the toilet. maybe he needs a pipeline?
No buffet had bought KMI last year and the purchase was disclosed in year end filing in December 2015 it was announced yesterday after the final bell it caused the stock to jump over $1 overnight.
When it was announced on Bloomberg & other media.
Volume today was almost double yesterdays volume.
Do you think Buffet is now buying more of this stock or selling with increased prices?
I suspect he is selling to the herd.
just the talk is scaring away the shorts. that the whole purpose of the talk. no way can these countries agree on anything except to cheat on quotas.
i heard charlie sheen say he never does drugs anymore. on national tv no less. it has to be true. i believe him.
These countries are also run by corrupt and incompetent governments. No telling what they will do next. Jim
Whether the price of oil goes up or down I still think anyone who buys Kinder Mirgan at these levels is going to make a lot of money. Jim
good point.
When the market plummets its the best time to buy. Quit paying attention to the news and watch for drops to add to good positions. If you think it’s all going to evaporate.. for the first time EVER .. why would you not be in cash and quit paying any attention at all. You never lose money buying … it’s only when you sell… If theres something to complain about it’s bonds… I mean why bother. Better to keep it in cash and then full purchase power when you see a stock go on sale.
With the Apple decision there is the question of how much of your perceived rights and freedoms are you willing to give up? There is no constitutional right to privacy but we believe we have it, the tenth amendment states that those rights to regulate not reserved to the federal government are left to the states, and those not taken by the states are left to the people. My personal opinion is that the more we give up in the face of terrorism for security, the more the bad guys have won. In the case of this particular iphone there is nothing to be gained to stop further terrorist attacks, it is just a case of the government trying to gain more access to our private, daily life. I don’t think they would gain any information in the future from other such devices to stop any further terrorist attacks. And there are too many devices to monitor to stop attacks.
Apple (AAPL) is acting against Federal law and so should be taken over for being conniving with terrorists. Take all their money and put it to use against terrorism and to compensate US victims of Islamic terrorists.
mythology
Could both Bears and Bulls be right! That is what Larry keeps saying Oil to at least $39.00 and Markets down Dow 13500. I keep waiting for this Trend reversal, But it never happens. Market down Oil Down, Markets up and sometimes Oil up. So far we are playing both sides of the coin. Still waiting for Oil up and Markets down.
I got out of stocks completely a over one year ago and concentrated on options trading. About 4 months ago I got completely out of options except for gold, sliver and derivatives of those commodities. I’ve done very well up over 50% in four months. If I had a ton of money I would put some of it into physical gold and silver but given the leverage options trading based on these commodities provides seems to be a no brainer. As the European Union experiment unwinds gold will explode in value.
Tom
Just a thought. We are constantly told that gold is a bad investment because it has no yield. Just how much yield will you get from negative interest rate bonds? NAlso gold is the only possible asset that offers some measure of protection against inflation or deflation. Jim
just a thought. maybe a negative carry trade on bonds will be the impetus to push investor into stocks?
at least investors will get a dividend in lieu of a negative yield.
If the U.K. leaves the union it could change things considerably.
Hi Howard,I want out of this stupid club.EU
we are still in a bear mkt. with some huge 3 day rally. have the guts and short the mkt. etf’s .QID AND RWM look good, but also dxd and sds 3 are double inverse, so use your risk mgmt–but the mkt. will not overcome all the resistance pts. and then the real off the cliff fall will happen–all crystal ball educated guess, of course
There is only one way and that’s down. The potential for down is enormous so the big short at 16400 Dow is a good spot .
Was recent market surge results of short cover rally? Shorts as you know are traders and not inclined for long haul when it comes to taking a profit and seeking further entry point. Once shorts get to covering there is a snowballing effect. Positive news out of crude production sounds like hair pinned trigger for short traders.
Reported 21 million barrels in offshore storage. Enough for traders to bite the bullet?
Those Muslim killers, YES THEY WERE MUSLIM, who were practicing their faith by murdering Christians and Jews, as usual were not operating alone. The Apple president and there entire board must be charged with refusing to obey a court order and their offices must be raided by U.S. Marshals and arrested to serve their appropriate jail sentence. Maybe after a few years in the pen, these JERKs will comply with a necessary request by the FBI to supply the information on the phone which will enable the tracing of the Muslims who assisted in this terrorist attack on unarmed helpless civilians on our own soil. These Muslim sympathizers created the code and designed the chips. They know darn well what code sequence is needed to break it open. What has happened to our judicial system? Have they gone soft?
Question: Who is smart enough to use/purchase an encrypted phone?
Answer: Criminal/terrorist!
Bollocks on the whole Apple thing (you left out Google, who’s in the same boat with Apple and taking the same stance.)
All the govt has to do is give Apple the phone and Apple will unlock it and get them the data they so desperately want.
What the govt wants from Apple and Google is for those companies to give them the keys to unlock the phone. Once in govt hands, no phone is safe.
I’m sure Apple would gladly open the phones for the govt. and dump all the contents. That’s not what the govt wants.
They want the keys to the castle.
I think it’s a company with ethics and is willing to fight it all the way. They have the money and smarter lawyers. Even some early judges point’s of view is that the govt is not reasonable in it’s request.
As for “Mr Wonderful, who’s smart enough to use an purchase an encrypted phone? Not terrorists. Just millions of iPhone 6 and Android customers. No one likes a snoop or snitch and the govt replaying the “terrorist” song is still on the rampage to know everything on everyone.
If we would act a good citizen of the world and not overthrow and destabilize 7 government in the last 10 years or so, and continue to do so, we wouldn’t have a dog in this fight.
We’ve had bad and gutless leadership for more than a decade. Doesn’t matter who wins in 2016. One election won’t turn this Titanic into a pleasure cruise.
That old saw of “the bigger they are, the harder they fall” will come to pass in our lifetime.
Personally I’m long gold-physical; long silver-physical; short the uS markets and the EU ones and the Euro. Anyone listening who feels buying shares of a company at 32+ P/E is good idea, need to seek psychiatric help.
Oil won’t likely see $50/bbl for 3+ years. Personally, I’m staying away from that clusterf**k.
Putin has us and everyone of the troublemakers in the ME in check, and soon checkmate.
Ivano – I believe Apple president is guarding the henhouse from the government foxes who want to go above the law in obtaining private information. If we allow even one intrusion on our privacy, it will open the door for many other types and kinds of invasions of our privacy. I’m certain the government has other means in which to obtain the information they are seeking. I say – YEAH Apple president for taking a stand to abide by the current and existing laws that protect all of our phone privacy!!! If we are a nation that allows our FBI to break the law – then who will be next and where will it end??
This is most possible a “retracement” as investors bought into recent lows, however the ultimate sentiment is a resounding lack of faith in the financial markets right across the board. Physical commodities are the only safe haven for cash (except of course oil – with any advancement in renewable energy technologies driving nails into the coffin of oil).
Following the last Weiss post 2008 doom scenario I went heavy on gold and stayed away from equities. It cost me 1/4 million+ keeping faith with Weiss warnings and directions despite the equity rebound while riding gold up through $1900 to its crash and mine.
Forgive me if I take this newest version of the end of the world with a grain of salt.
Mike,
Regarding Apples decision: it’s wrong. It reminds me of 1993, first World Trade Center attacks and nothing was done by President Bill Clinton. The hard decisions weren’t made at that time. True leaders make the hard decisions when necessary. He didn’t, consequently 9/11 took place. As a New Yorker, I have never forgotten what I witnessed that day. Apple’s decision, if it stands as it does today, will undoubtedly lead to a future event much worse than 9/11. God help us!!
Seems like this is just upside volatility. At some resistance point, the major indexes will turn down again to retest their lows, then back up again… and so it goes for the foreseeable future until volatility reduces investor enthusiasm and gradually dissipates.
Thought for the day: “Under Capitalism the rich become powerful. Under Collectivism the powerful become rich.”
It’s real easy to say buy on the dips, but go back to the first China Yuan devaluation last Fall, there was real terror in the market and the unknown, will it continue and bring the market down and for how long? Times like that are pretty questionable for someone who just saw their investments tank, and then go out on a limb by plunging in? You have to have some kind of faith or maybe foolhardiness….I remember the big dip going into Mar. 2008, I admit that was the time most investors seemed to have given up on stocks, but I remember a major investment publication owner taking those times and investing back at the lows of September, but the market continued to tank until March of the next year.
This bounce is a false move.
I am 99% convinced the U.S. Stock Market will see a downturn drop tomorrow. What we have been looking at for the past 3 days is a Dead Cat Bounce.
here we go again. this does not have to be over thought. greed will always motivate people 2 buy when they think they can make money. they very rarely short when they think they can make money. the only thing people have to remember is “dead things do not grow” are people still wondering whether the economy and the world markets are dead and done? People deserve to lose all their money if they can’t see or figure out that basic facts.
The patient is dead folks. it’s only being kept alive by life support, but the patient is basically dead. at some point the machines get cut off and the patient dies physically. but get the facts, the patient is already dead. I sure hope the people reading this can figure out who the patient is. or better stated, are.
Apple security,
I would never buy any product that is an eavesdropping device. Samsung tv that can eavesdrop on your home.
I would never consider buying on. So Apple if they want to retain market share needs to say no to giving the criminal government a key to our phones. zuckerberg got the CIA man of the year award. I am not on Facebook.
Same FBI knew 911 was coming and did not stop it. In fact provided material assistance to first WTC bombing. They are a tool of the deep state. When all 911 perps are hanged then we can give them keys to phones.
i am reading more & more that the banks are going to try to go to a cashless society. if the banksters go to a negative interest rate, they can rob us to the tune of 2,3,4,5, or whatever they set the negative rate at. we wont be able to withdraw our money & keep it in cash, there wont be any cash. by taking this freedom away we become enslaved to the corrupt banksters. this would be just as bad or worse than taking our guns away and leaving us defenseless. your thoughts or escape plans, please.
APPL’s refusal of FBI access to a dead terrorist’s phone is a disgrace.APPL is not protecting his privacy…he is dead! It is putting shareholders’ profits ( by pleasing its young customer base) ahead of the security of US citizens. It is is also defying a court order for which its directors should be prosecuted as it is a criminal offense .
I hold my largest position in SDS. This has been the case for a year now. I own it in about the 26 level. I am betting big on SDS. I am concerned with ETF decay. Being it is a 2 times ETS it is safer than a 3 times I figure. I think the markets are going to have a tough time in 2016 and 2017 as you mentioned also. I would not be surprised to see a 30 to 40% drop over time I see you are not a SDS fan. Am I cooked ?