Mario Draghi has become the biggest dealer of monetary policy drugs on the planet, now that the Federal Reserve has moved to the sidelines. So Wall Street’s financial junkies were waiting with bated breath for the latest hit earlier today.
Market Roundup
But Draghi failed to deliver … and that released a massive wave of volatility in world markets. The key question, then, is what’s next for markets?
First, let’s talk about what the European Central Bank did. It …
Reduced the deposit rate to negative-0.3% from -0.2%;
Extended Euro-QE through March 2017 or “beyond if necessary,” compared with a previous projected endpoint of September 2016;
Announced plans to reinvest principal and interest payments on bonds it has in its portfolio;
Expanded the list of bonds eligible for purchase to include regional and local government bonds, rather than only national government securities.
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| The eurozone didn’t get what it wanted out of the ECB today. |
But the 10-basis-point cut in the deposit rate failed to meet the expectations of some investors, who wanted as much as 20. Draghi also did not boost the monthly pace of Euro-QE, which is currently running at 60 billion euros a month. Several reporters asked why, pointing out that the markets were disappointed and expecting more, and he didn’t have very satisfying answers.
The result: The euro soared almost five cents against the U.S. dollar from intraday low to high – the biggest rally since early 2009. European bond yields jumped, dragging U.S. yields along for the ride, and European stocks plunged.
U.S. stocks swung all over the map — with the Dow Industrials opening in the green, then dropping 100 points, then rallying back into positive territory. But ultimately, stocks couldn’t hold up – and the Dow tanked around 250 points.
Another factor added to the volatility ahead of tomorrow’s key jobs report: The ISM services index came in at a disappointing 55.9 in November. That was a notable deceleration from 59.1 in October and well below the average estimate of economists. A separate consumer confidence index compiled by Bloomberg sank to a one-year low of 39.6.
So what are my thoughts here? Where do markets go next?
I believe today shows how Mario Draghi and Janet Yellen are continuing to lose control of the markets. This constant game of over-promise/under-deliver, lead/follow market expectations, hike/don’t hike, print more/print less is eroding confidence, increasing volatility, and otherwise making the markets a more dangerous place to invest, not a safer one.
| “Mario Draghi and Janet Yellen are continuing to lose control of the markets.” |
I also believe the downside economic risks are growing, what with the ISM manufacturing index at its lowest level in more than six years and services momentum decelerating. To me, the risk is greater that growth slows more than expected rather than accelerates substantially.
I don’t see how that is bullish for stocks. Neither is the ongoing deterioration in the credit markets, which I’ve harped on for several months. Punch up a chart of the SPDR Barclays High Yield Bond ETF (JNK) and you’ll see it’s trading at 49-month lows.
Or look at some of the stocks most sensitive to leveraged credit and easy money, such as the private equity and hedge fund stocks. Names like KKR & Co. (KKR), Fortress Investment Group (FIG), and Blackstone Group (BX) can’t get out of their own way — with all of them peaking in the spring, hardly bouncing at all during the recent rally, and now threatening to break to fresh mutli-year lows.
My advice, therefore, is to continue to exercise caution … hedge … keep elevated cash levels … and otherwise handle your money differently now than you might have in the six-plus-year bull market.
But that’s just my take. What’s yours? What do you think of what Draghi said or did this morning, and its potential market impact? Are we still poised for a year-end rally and run into 2016 on the backs of easy money? Or is that process played out, and the downside risks greater than the upside opportunities? Let me hear about it below.
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Just how strong is the U.S. jobs market … and what does that mean to the economy and stocks? Several of you weighed in on that topic overnight.
Reader Richard said: “I am absolutely confused. The oil industry alone has let go 250,000 people this year. Almost every day there is another report of a company laying off people from 220 at Deere (DE) to Caterpillar (CAT). The list goes on. Thousands more lost their jobs this year.”
Reader D picked up on that message, saying: “You have to take these numbers with a grain of salt. There’s a major birth-death adjustment for small and medium-size business hiring, and in the first and second announcements, it’s fuzzy math. It takes several years, with better data, to really get a handle on things.
“It is clear now, for example, that the growth and jobs numbers of 2013 and 2014 were inflated. The semi-final revisions make it all look more modest than it seemed at the time. I strongly suspect that 2015 will be similar: Inflated numbers now, plus Wall Street hype, followed by later disappointing revisions.”
Reader Bob C. expects the tone of jobs reports to deteriorate going forward, saying: “Employment is the most lagging economic indicator of all. It reflects the economy last summer. It’s the last indicator the Fed should be paying attention to here. Manufacturing is in recession now. That’s the most important indicator the Fed should be watching.”
Speaking of the Fed, Reader DD said: “A rate hike would collapse the global economy and drive down reported profits for U.S. multinationals that get more and more revenue from overseas.
“But it’s not Janet Yellen’s fault. Rates should have gone up two years ago. Instead, Ben Bernanke chickened out, leading to massive amounts of capital flowing to bad investments.”
Thanks for the input. I gave my analysis of the current economic and policy situation earlier, and would love to hear if you agree or disagree. So please make sure to add any additional comments you might have below.
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We’re learning a lot more about the latest tragic mass shooting, this time in San Bernardino, California. The two suspects have been identified as Syed Farook, 28, and Tashfeen Malik, 27, a married couple with a 6-month-old daughter.
Farook worked for the county health department for a half decade, attended a holiday party at the Inland Regional Center, left, and returned armed with rifles and handguns. After shooting the place up, they fled in an SUV that police tracked down. Both were killed in a subsequent gun battle with authorities. Authorities are now trying to identify a motive, and determine whether the suspects had any terrorist links.
The U.K. has begun to bomb ISIS in Syria, joining the U.S.-led campaign after a vote in Parliament that authorized additional military action. France and Russia are among other nations attacking various targets on the ground.
Saudi Arabia will only cut its oil output if other OPEC nations and countries outside the cartel do so as well. But neither Iraq nor Iran appear ready to play ball, nor does Russia — and of course, U.S. producers aren’t going to take their marching orders from the Saudis. So an OPEC output cut seems unlikely to come out of tomorrow’s Vienna meeting.
Let me know your thoughts below on these or any other topics.
Until next time,
Mike Larson
P.S. Are you pondering what you should be doing now to preserve your wealth in a world gone mad?
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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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Screw the multinationals. They have used the free money for stock buybacks, investments overseas and keeping their money off shore. There has been no need for the low interest rates except to artificially increase PEs and let the market go on a tear. Raise rates 50 basis points a month, let all the worlds capital flow here seeking yield and have the Saudis pay dearly for their war on our oil industry and the Chinese for currency manipulation. Also, give a one month amnesty or a very low tax rate for multinationals to bring their trillions back here. We may then be able to rebuild our infrastructure and possible reduce our debt a little. two months ago I said to buy the TBT at 36. Its up 20% since and has a lot of room to go.
AMEN
AMEN
I pulled a one year chart for TBT. It has never been below 38 in a year and not below 42 in the last two months.
Totally agree with your assessment frebon.
The players in the market do not have our best interests in mind; rather bleeding us like leeches while they become more wealthy. Where did the 16 trillion go that the Federal Reserve tried to hide and how much of that amount has been returned? Would this prove your point if this was answered? They said it was to bail out banks to include foreign banks but I suspect it went elsewhere.
these violent attacks seem to take place where gun control doesn’t allow helpless citizens to defend themselves – places like chicago, new york, california and britain.
…and paris, of course.
Gun attacks in Britain?? Please explain. In all British Commonwealth countries the number of violent attacks with guns are minuscule. Every day in USA there is a violent shooting of innocents, 355 to date this year, thousands of people killed, while over 350 million guns are in the hands of the “helpless citizens” for “self-defense”! One gun for every person, aged from 1 to 99. Media reports those 2 killers in San Diego had a dozen guns, rapid-fire repeat assault rifles & pistols and 6,000 rounds of ammo, all purchased legally in California. Comments like “helpless citizens” are unable “to defend themselves” makes me ask: is the USA suffering from mass hysteria, paranoia with hallucinations, about the need for more guns for public safety?
Guns are inanimate objects. Our problem is large numbers of criminals, jihadists, and crazy people roaming the streets. The USA is suffering from all the maladies you mention and more I can’t spell. Jim
The citizens of the Commonwealth countries have not been bombarded for thirty years by the culture of victimhood and it’s associated grievance industry. There are many people in America that consider it an unjust society. Our culture has also deemphasized general principles of morality. Life is no longer considered sacred. The killers care no more for their own lives than their victims. The drug war is responsible for much of the violence and widespread drug use is another symptom of a very sick society. America has lost its moral compass and I don’t know if we can get it back. The genie is out of the bottle. The guns are but a means to a self destructive end. Jim
i was thinking paris when i typed britain, ron. that’s why i typed paris as when i read my mistake. give an old guy a break, i’m not as smart as i used to be.
but britain suprisingly has had their share of terrorist gun attacks. google “wikipedia terrorist britain” and you’ll see a long list going way back to the 1960s.
The violence in the US pales in comparison to places like Mexico and Brazil. How about that Middle East? We are way down the list internationally. I have a friend in England who tells me they are terrified of criminals. Crime is way down in conceal and carry jurisdictions compared to those with strict gun control laws. You have it right. Jim
there’s half as many shooting in america today as there was in the 1990s when gun violence was at its peak. surprisingly, there’s more guns around nowadays too.
There is no imaginable gun control law that would have prevented the California shootings. If you will break the law against murder why would you care about a gun control law. I’m not too happy about the direction my country is taking either, but it never occurred to me that taking the life of an innocent bystander would fix it. We need to do something realistic to deal with the mentally ill. Jim
As much as the left always tries their best to make a cause to disarm the public of their 2nd amendment rights they always want to expand the rights of the people for illegal drug usage and late term abortions, just as the black lives matter movement was asked do all lives matter they replied black live matter . I think the correct answer was ALL LIVES MATTER ask yourself this has anyone ever taken the time Ronald E, Baker to see just how many lives have been taken or destroyed in a given year to illegal drugs which are the main death in this country to your above quote and also you forgot to mention that these people that did this horrific act were muslim extremeists and that they had a IED assembly line in their garage im sure most of the people are thinking here if a building inspector and his wife a pharmacist were willing to become jihadists for their cause to inflict harm to innocents just how many tens of thousands of these radical muslim extremists are out there
Draghi and Yellen should not have control of the market in the first place.
Its called the free market!
Maybe if government got the hell out of the way, the market would correct itself.(HA! HA!)
Crusades 21st century style!
The World has been on an unfettered capitalism tear for decades, the World cannot afford such greed. The Chinese have thrown many in jail, and scared public Officials such, that they will not accept a penny in Bribes. Further recently, they have arrested many more, and expect to arrest even more, factory owners have been forced to buy back shares they sold. you steal in china slowly they will catch you. your Lawyer does not enjoy confidently = bye bye.
Thus, unless the rest of the world changes from unfettered Capitalism to responsible Capitalism or face a riotous expensive depression, take your pick.
Peter W
This country has not had “unfeffered” capitalism for over 100 years. Depression in the coming case, is not caused by capitalism, but meddling with it. Generally speaking depressions are caused by excessive expansions of credit. They come very seldom,is why it is seldom expected. Who controls credit in this country today. When those control credit it is not capitalism.
Outstanding! Jim
Hi Mike,
It has been said many times that nothing goes up forever. This market has been going up and up fueled by ridiculous low interest rates and the printing of money.
The outstanding debt levels are spectacular (national, state, county, municipal, personal and corporate). The amount of derivatives, from what I read, far outpaces the levels that existed before the recession of 2008. Now, most experts talk about the risk of massive inflation ahead, but it appears to me that, in the short term, the real risk is deflation, which would cause massive unemployment and all the problems that it entails.
I agree with Louis Pereira. Add to that the recent short sale of 32,000 paper gold contracts by a bullion bank in one week, (equal to 110 tonnes, or two weeks of world-wide mine supply), as reported by John Embry and one can only wonder when it will all blow up. We are floating on an ocean of paper derivatives with no hope of any counter-party settling these, thinking our life raft will never sink! When default does arrive, where is the coast guard?
And the Comex has sold something like 250 paper ounces of gold for each real ounce in their vaults. Of course, the Fed has printed trillions of bit bucks with no backing whatever.
I sold 55% of my Funds & equities on the 180+ point “Sell Into” rally this week ….I bought 5 contracts shorting IMAX & LGF I was trying for 15 3/16 35P (5 IMAX ..10 LGF) but only got filled 5 on my limit ..LGF moved so quickly ..That failed. the Dollar hit major highs(SHORT) But at least I got out a bunch Before this Mess ..the 1800 point rally in October//November reminded me of last July, when I only sold 35% …Larger Weighted stocks holding up the numbers, yet selling to heavy selling on many smaller stocks..Breadth sucked most days, but a few…giving false “hopes” in my view. FinViz was showing all kinds of insider selling by most of the Top execs LGF.. IMAX, PII, LVS ..and They were selling bit by bit …most of they way Up from the October lows …Big up days ..more selling …Imax Knows their stock is overvalued ..why I shorted them, with puts . The markets may not go Straight down …there may be some “fed” ..pump & dump ..effect on the markets (sell into rallies) I will use rallies to add to shorts positions. I don’t see much catalysts for the Expected “Seasonal Rally” ..but if it comes I am still 45% in …I almost went 70/30 …I have a couple 1000 of graded (NGC, PGCS & ANACS) silver, US, CC Silver Morgans(ms 63-65), Morgans, Peace Dollars, Silver Liberty Halves, Quarters & dimes ( for when Paper possibly Fails) 100’s of graded Chinese Yuan, & low mintage Specialty sets ..some as low as 1000 to 1800 total mintage all graded Ms // Prf (68-70) many Australian, Canadian, British, and Some of the south pacific Island Nations minted at the Perth mint. I have also been accumulating Physical Titanium, Copper bars, Zinc, & Nickel (Canadian .999% nickels by weight) and some Us pennies (95% + 5% zinc) & Canadian pennies (98% copper) I also have Dozens of High Grade $1, $2, $5 $10 1928 to 1957 including Gold & Silver certificates …AM I Too defensive for now or is it How I think …Better Early than to get caught in the Whirlwind of Panic, that many have been “trained to Buy on the Dips”..Like I said, I was beginning to see the “July effect” showing again, which brought us October’s slump. There may be another rally or 3, but I believe it could be the ..fast moving “I gotta get in” rallies, possibly into the 1st or 2nd week of January, that the big money will use to move the market higher so they can get the maximum gains, while handing You Maximum Pains! …I was just halfway through my plan …but They have the Same Plan …only on their schedule, Not Mine. Well I made much of my sell side, but did not get much protection, because I thought there Might be a Chance at another week (first week Mutual Funds rebalancing) or two …..Insider Selling, Yield Curve beginning to invert, the Double Top ..in most markets …Dollar near All Time highs, ..the signs were raising their ugly heads …Maybe all is Not Lost & I get that 4th shot at Dow 18,400 or S & P 2150 to sell into & begin to accumulate ..2018 $10 leaps on TCK ..$20 leaps on the GDX, $25 leaps on the GDXJ ..outright Buy on PSLV or maybe $20 leaps on SLW ..all 2018 expiration ..they are Dirt Cheap! …SLW $20 2018 calls were around .90 or $90 per contract …the others are at bargain basements rates. Let’s see what happens!
I Forgot to mention, that the XLF was at about the Same 26.00 when the 2008 Crisis first hit & sent it down to around 10 …Might still get that Last Fake out Break Out ..and get XLF 2018 $18 P for around $1 = $100 per contract ..Cheap insurance for if it Really falls apart ..If the XLF falls like it did in 2009-09 it will surpass that $18 strike in less than 4-5 months ..and possibly hit $12-14 before next summer is out ..and still have 16 months left!
On 10/30/2015, the US federal debt was $18,152 billion. On 12/1/2015, that debt was $18,797 billion. How can our federal debt increase by $644 billion one month and how much will it be in another year? Is anyone concerned about the skyrocketing national debt?
The recent Safe Money Report listed the Top Targeted Banks JP Morgan, Bank of America, and Goldman Sachs. These banks are basically insolvent since the 2008 crash. They were leverage to the hilt like Lehman Brothers, but the Fed absorb their toxic debt. Because the banks were bailout, they did not change their behavior.
The To Big To Fail Banks are leveraged more now than in 2008.
JP Morgan: $70.4 TRILLION
Citigroup: $63.5 TRILLION
Bank of America: $55.7 TRILLION
Goldman Sachs: $53.5 TRILLION
Morgan Stanley: $46.7 TRILLION
TOTAL Derivatives Exposure for Top 5 Banks in the U.S.: $290 TRILLION
Its the same all over the world. All big companies are putting their profits some where, but
just not in their own countries.
Great name! Jim
The impediment to a one world global governance is the USA. However, the big banksters, listed by Weston, are the real culprits that should incl HSBC and the Bank of Hong Kong who also have trillions of leveraged derivative debt. That said, these financial institutions manipulate all the money in the world and stand to be the beneficiaries of the global collapse since they will pick up the pieces and control everything. Yellen and Draghi, who are printing funny money for years, are the financial puppets and will direct the Fed and EU Central Bank to do what their masters will order. The Dow is at least 40% over-valued and zero interest rates for the last 10 years meant that retirement accounts have been making “zilch”. Real unemployment is over 10% with 50% of the population paying no federal taxes and is on welfare. Obama has doubled the debt to near $19 trillion and this will increase another $1.5 trillion by Dec 2016. Trump, Buffett and many billionaires are shedding the dollar by dumbing millions in stocks and buying gold. Buffet has purchased $800 million’s worth in the last couple of years. Collapse of our economy is eminent. Buy gold or sliver, long term food storage, water, solar generator, guns and lots of ammo. This is not the talk of a crazy person, only a realist who believes it will happen.
Add defensive missiles around your house or property, an airstrip with a fueled fighter jet at the ready, and land mines around your perimeter, and you’re good to go.
Two months ago TBT was at lowest point of 42.52 probably for a few minutes at most according to YAHOO charts, so I wonder where frebone got his 36 handle from ?? His general premise is probably correct but let’s not massage the data like others do!
Farook, the San Bernardino shooter, seems to have been radicalized by his
Saudi Arabian wife. There is said to have been a Facebook pledge of adherence to the ISIS leader, Baghdadi, from her. I wonder why ISIS hasn’t claimed responsibility for the attack, as they normally seem to do.
The forecasting cross euro us dollar 1 or 0.90 .80 must await !!!