A low volume melt up?
Market Roundup
A few days of triple-digit Dow gains with seemingly no fundamental catalyst?
A lack of confirmation from other capital markets?
Yep, folks … it must be a Santa Claus rally! The action we’ve seen feels good considering the recent carnage in a number of sectors and the broad market. It very well could continue through Christmas or even New Year’s Eve.
But I wouldn’t get too carried away. Instead, I’d use the low-volume rally to reposition out of some loser investments, and get prepared for what may be a challenging 2016 ahead.
I’ve shared some of my reasons in recent weeks. But one potential threat the Wall Street Journal just wrote about bears particular watching. I’m talking about one of the biggest “hidden” groups of sellers out there — the world’s Sovereign Wealth Funds.
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| When we think of Saudi investors, we think of wealth. But even that country is feeling the pinch. |
Consider these sobering facts from the Journal:
* There are a whopping 79 sovereign investment funds active in the world’s markets now — up 79% since the last major market peak in 2007.
* Those funds control around $7.2 trillion in assets, twice their size back then. They collectively manage more money than every single hedge fund and private equity fund in the world.
* Yet many of these funds operate behind the scenes, providing few details on what they own or how they invest. Some don’t disclose their size. Others are being investigated for shady behavior, self-dealing, and non-economic investment practices.
Perhaps most troubling of all: Almost 60% of the sovereign funds out there are leveraged to energy prices. That’s because they’re backed by countries that are dependent on oil and commodity exports.
| “Now that energy prices are plunging, the governments in those countries are drowning in red ink.” |
Now that energy prices are plunging, the governments in those countries are drowning in red ink. So rather than putting money into their funds, they’re taking money out. And rather than those funds having more and more capital to invest in the world’s markets, they’re being forced to sell or redeem investments — putting downward pressure on asset prices.
Morgan Stanley estimates that sovereign funds withdrew $100 billion from various outside asset managers in the six-month period that ended Sept. 30. Saudi Arabia’s reserve hoard alone has shrunk by 13%, or around $100 billion, in the past year. Chinese reserves are down almost $600 billion from their peak, another factor likely to put downward pressure on asset markets.
So again, enjoy the holiday rally. And please allow me to take a moment to wish you and your family a pleasant holiday season, as I won’t be filing my regular Afternoon Editions on Thursday or Friday.
But keep in mind that “hidden” sellers lurk out there, and they’ll continue to be a headwind as long as commodity prices remain depressed.
What do you think of foreign asset liquidation? Is it a significant threat, or one that can be offset by other factors? Will China, Saudi Arabia, and other major global players continue to sell U.S. stocks and bonds, and if so, what does that mean to your investing strategy? Let me know your views when you have a minute.
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What does the future have in store for Walt Disney, and what do you think about the recent negativity on its shares? Several of you took the time to weigh in on that yesterday online.
Reader KD said: “ESPN woes are NOT new news. I do find it very interesting that Mr. Greenfield (of BTIG) conveniently dropped his “Sell” rating the Friday of the Star Wars premiere. I wonder how many of his ‘friends’ were short DIS that day, knowing the movie was going to blow out the box office and the ‘longs’ were counting on it. Wall Street at its worst.”
Reader Valerie also weighed in with a negative view on the downgrade, saying: “I own Disney and find Mr. Greenfield’s comments about ESPN very suspicious. I heard his interview on CNBC. When he was pinned down, he said that he was lowering Disney’s stock because in 2017 and 2018 they might have too many cancellations for ESPN. He gave no credit to Star Wars or the Shanghai theme park. I think he should have.”
Reader Manuel came to Disney’s defense as well, saying: “I own shares and regardless of the ‘Sell’ rating, I would not sell any of them. Each one gives out dividends better than any bank interest and Disney will last forever. The facts are that Disney went way up after buying Marvel, and I bet you that even if people might not believe it, Disney will go up once more.
“I’ll tell you what I would do. After it goes down to its new estimated price of $90, I’d buy again, because Disney and Apple (AAPL) look very similar in terms of what people thought at first about the newer iPhone. People just don’t know it yet. May the Force be with you.”
On the other hand, Reader Michael said: “As the Baby Boomers get older, they are going to look for places to cut costs. They will remember that when they were kids, their parents used an antenna to pick up local TV stations. They are going to find out, with a little research on Google and Youtube, that they can buy a high definition antenna and get a bundle of stations they only dreamed of as a kid.
“Include an Internet connection and Wifi and they won’t even miss cable and satellite networks. My advice: Look for TV antenna manufacturing companies and dump your cable and dish network stocks.”
Lastly, Reader Mike suggested one way Disney may try to do an end-around to keep subscribers paying for ESPN content. His take: “I think ESPN will follow Starz and make a deal with Amazon (AMZN) Prime and probably Netflix (NFLX) to be an additional streaming source at a monthly charge. I have no idea of the gain or loss of viewers, but Disney will not go to the bitter end with the cable companies.”
Thanks for sharing your views on the iconic media company, and the outlook for its shares. We’ll have to see if it can re-gain its market leader status as the calendar rolls over, or if the recent struggles are just a harbinger of more problems to come. If you haven’t offered your opinion on this topic yet, the Money and Markets website is here for you as a resource. Be sure to use it.
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We got some November economic data today that’s worth chronicling. Durable goods orders overall were unchanged, but down 0.4% in the crucial “non-defense orders ex-aircraft” category that’s seen as a proxy for core business spending. Meanwhile, personal income and spending both rose 0.3%. That was roughly in line with estimates.
The U.S. Postal Service is battling against UPS (UPS) and FedEx (FDX) for holiday shipping business … and it appears to be winning. The Wall Street Journal reported today that volume has jumped 15% from a year earlier, and that its market share of seasonal business is up to 40% from 35% in 2014.
Apparently, the nation’s millionaires don’t think much about the stock market’s prospects. CNBC recently conducted its latest twice-yearly survey of wealthy investors and only 46% think the S&P 500 will be able to rise at least 5% next year. One-quarter of those surveyed think stocks won’t go anywhere at all. Many more now also favor the non-economically sensitive health care sector over previously popular financial stocks.
If you’re a history buff, then this fascinating (and chilling) story in today’s New York Times will interest you. It describes a newly declassified target list from the late 1950s showing the hundreds of Russian, Chinese, and Eastern European facilities and cities we would have nuked in the event the Cold War went hot.
So are millionaires on to something with their negative view on stocks? What do you think of the USPS’ holiday resurgence? Any other stories that caught your eye, and that you wanted to comment about? Then use the section below to add your views.
Until next time,
Mike Larson
P.S. In 2016, members of Larry Edelson’s Supercycle Trader are going after profits of up to 1,200% and more as Europe and Japan crash and burn — and a massive wave of flight capital drives select US investments, gold and silver through the roof.
Click this link to find out more now!
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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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Inflation or deflation? What do you think of gold? + or –
MIKE, it is Christmas , so why not wish me a Happy Christmas. You PC guys make me want to puke. Time is coming.
ROBERT MCCAUGHAN
The price to ship is ridiculous. I’ll be driving 5+ hours to visit my daughter’s family and hand deliver their Christmas presents. What I save on shipping costs will more than pay for my gas.
Fed ex and Ups use the post office to deliver the “last mile” of a package’s journey. Those 2 will pick up at the shipper and bring the goods to the post office’s nearest bulk mailing center. Then it goes to local delivery. I am a retired truck driver and delivered many of these loads myself. I also have tracked packages from Amazon to me. Fed ex picks up and drops at the BMC every time so far.
Gold is gold and I believe one of the last investments managers would move toward. Once interest rates loose foothold on prices inflation rears up as cost valuations get out of control. Periods of hyperinflation as we had in the housing market. With the dollar rising SP companies are combating overseas margins its not a good look for equities but will undoubtedly result in eventual gaps in valuations as rates, spending and govts. correct themself. Good gold investments are rare HIGH graded coin. Tending to hold value even in a depressed gold environment. Foreign monies will be coming into the U.S. dollar china QE euro etc leave gold alone for now.
Gold is a good hedge. Just don’t get carried away. The conventional five per cent holding isn’t going to hurt you but could prove very rewarding in the event of unexpected turns in the economy. Jim
High-Graded coin? “Rare”? Not really, if you mean .9999 Pure Gold (Canadian Maple Leafs). Sounds like some mumbo-jumbo to me, David.
Rare, highly graded gold coins are collectibles that have nothing to do with commodity gold. They, like fine art, are priced on rarity value. If you do invest in that field, please be sure you get a seller’s guarantee (insurance) that what you are getting is not counterfeit. Only buy from established, reputable dealers.
The Saudis and Chinese will sell their Foreign currency holdings before their equity. If the Fed keeps raising though and they will have to accelerate their currency selling then maybe equities will be on the table. You mentioned the tremendous growth of the Sovereign wealth funds but how will they stomach another Bear market. If it should happen next year amid rising U.S. interest rates, watch out below.
There are a lot of potential problems with the low scape the floor oil prices for the producers. Quite a few countries have gotten so use to hundred dollar plus a barrel prices they sored up their economies with the oil revenue. They expanded and expanded social programs and giveaways to bolster the leadership. But what happens when the money runs out, they borrow themselves in a deep hole? China is seeing riots and protests in its crippled steel industry. To keep jobs and plants going they are dumping steel at below cost on the World’s market. But nearly half the plants are closed, people unemployed for the first time in their lives and they are in their fifties. What happens as countries slap high import taxes on Chinese steel. What happens when these governments can’t deliver?
Merry Christmas to all. I won’t be making any portfolio changes (I don’t PLAN any) for awhile. Not a believer in gold. Silver at least has some industrial uses gold is for cuff links and jewelry. I hold a pretty well balanced portfolio has not done much this year. Maybe next year. I’m retired, and not planning to return to work.
I fear more our overly expensive, and vetted military industrial complex to perform something stupid rather than a bunch of marginal geezers afoot in the land of the formerly great. Oh well, cheers, and happy returns in 2016.
Happy Holidays to the war on christmas tin foil hats here.
Energy Pipeline MLPS & MYSTERY BUYERS
Energy MLP’S ( Closed-End Funds and ETF’s) started to lose ground after May, along with the rest of the stock market. However, their price declines really got going after Nov. 1. Kayne Anderson Energy Total Return Fund ( KYE) fell sharply in the past 6 weeks. It has 25% of fund holdings in only two stocks: Kinder Morgan at 12.5 % and Williams Companies at another 12.5%.
Kinder really took it in the shorts when they drastically cut their dividend. Consequently, Kayne Anderson Fund announced a big dividend cut on Dec. 17 from .48/share to .33/share. KYE mgmt has stated they are receiving less dividends from the fund’s various MLP holdings.
This change in energy valuations sure debunks the often stated advantage of “Midstream Operators” whose revenue is independent of the current price of crude product. Clearly, the contraction in revenues in the entire energy sector (deflation) is affecting everyone, including storage and pipeline companies, at least to some extent. No company is immune to the drastic drop in the price of crude this year. More dividend cuts may be ahead next year, even for the big multinational oil companies. If so, more deflation. This is looking scary to me. It could tank the entire stock market eventually.
Alerian MLP (AMLP) pays .299/share quarterly dividend. So far, no cuts. More a value fund. Still, value or not, its share price went down in sympathy with other energy holdings.
It really hurts your share price this time of year when you announce a surprise dividend cut.
Wednesday and Thursday both these Energy MLP’s had rather dramatic price rebounds. Clearly all the selling in the past few weeks, if based largely on tax loss selling ( like I did), can not explain the recent reversal, as Tax rules require tax loss sellers to wait 31 days before repurchasing the “exact same” shares. Otherwise, the capital loss is disallowed. I would have anticipated this price bounce to happen early next year. So, WHO is buying all these MLP shares??? I suspect a few large hedge funds, but nobody seems to know. It could be anyone in the world.
I wonder if the share prices of these recently volatile energy MLP Funds and ETF’s will go back down this January after the end of the annual “Santa Claus Rally”? All this volatility does not seem “normal” to me. I doubt its sustainable without the intervention of the Plunge Protection Team ( that old Boggy-Man again ). Very suspicious.
Mike, any guess as to who might be doing all the buying or what might be going on behind the curtain? Can we just blame all this extreme volatility on the FED?
The mid stream still represents a key component of our infrastructure with built in business and long term contracts. Everybody hates MLPs, so I like them. The Tortoise Fund is yielding 11 per cent. It’s a steal. Everybody freaked out because Kinder Morgan cut its dividend. It isn’t even an MLP and no longer has the stated purpose of paying out its cash flow as yield. This is a key sector with great tax advantages. I’m a buyer. Jim
the only time i hate mlps is at tax time. whatta pain.
Mike’s “hidden sellers” perspective: I think Mike has a real point here – there is no question that with oil prices down, economies slowing (and so tax revenues sagging as well) and defense spending up at the same time in key areas around the globe (Europe, Middle East, and even to some extent in Asia) that many of the world’s nations are facing budget squeezes. And since not increasing defense spending in many regions would be both naive and risky they are going to call upon the reserves they’ve saved up for just such a rainy day as we are seeing now.
It’s also pretty clear that “hidden sellers” of the kind Mike describes are not simply moving things around. That money is coming out of investment vehicles of all kinds and is being spent on whatever that gov’ts financial agenda requires. So that represents net de-vestment in the capital markets – and it could be sizeable. In fact that may already have been sizeable in 2015 – and could be one reason the rise in global equity markets stalled out this year. There clearly are other contributing sources of trouble, like slowing economies but net dis-investment by big savers could well be part of the equation, but in 2015 and in the immediate future.
But don’t blame the sovereign wealth funds for this. The entire point of their saving was to have resources for times when they’d need them. There is nothing “wrong” or “evil” about their withdrawing assets they own to meet their needs. You and I would do the same, and for the same reasons. But regardless I think Mike’s point is a good one because of the staggeringly large size of sovereign fund’s asset accumulations on the one hand, and because of what seems like a simultaneous need to draw upon savings by nations all over the globe at this time we could be seeing asset’s being drawn down by some hefty amounts these days. It just is what it is.
So I believe Mike’s point in relation to markets is that there are reasons that markets might turn down. And that is true. But if they turn up, even slightly so in the face of the headwinds of the global economies and in spite of disinvestment by national government – then that would also be an indication of strength among core investors who are putting money in that’s not as likely to be withdrawn as sovereign wealth fund money is likely to be. Keep in mind that markets in the US have rallied for some time in the face of adverse economic conditions. Those market conditions (here in the US at least) are getting incrementally better all the time – a trend that appears like it’ll continue into 2016. In addition the general economy appears set to collect long term financial benefits from lower energy prices, a situation that does not appear to be changing any time soon. That alone should help a lot – and it’s a new source of financing (that is money is no longer tied up on energy costs) for corporations around the world. True the oil and gas segment will hurt at these oil prices, but they are blessing of no small proportion in all other segments of the economy both in the US and around the world.
We obviously don’t know which way the markets will move in the new year but it pays to be ready for anything in 2016.
John
Fedex and UPS are quite expensive, can be unfriendly, and perhaps unresponsive. I had a recent package sent UPS (Amazon purchase) that failed to deliver 4 times (missing Apt #…though 3 other shipments of the same order were delivered to same address), and the last attempt was recorded as refused by the recipient. Maybe the good old home post office has re-invigorated lost values?
Wti crude had to test low to mid thirties as the late twentieth century high support. All resources shipping junk bond assets rallied off the $33 low on the winter solstice. Right now this is a short covering rally. Funds make a l
A lot of money on minor rallies and breaks.
Longer term depression maneuvers often lead to wars…..us uk saudi israel vs russia china iran syria and the rest of the usual suspects. Any
further decline means more bankruptcies and
more risk of an east west showdown.
Consider though that with the exception of china
the gang colors of us uk france and russia are all red white and blue. Just keep some gold handy.
The USPS is replacing its entire fleet of 200000 vehicles in effort to save some 22 million annually on maintenance cost of its aging fleet. The bid I believe was won by Nissan to provide every single vehicle and will build out a special production plant (in Texas?) Some 10 billion dollars. The USPS does mot rely on any taxes for funding but is a self sufficient business model and a Christmas card delivered across the country for mere .50¢ at would could be argued break neck speed…
Well, well, well! Now I know what has been pushing our ‘ dead ‘ markets up! At least the few [ Amazon, Netflix, Google ] biggies; along with real estate in selected areas!!
The billions from the hidden funds coming to American stock markets.
Merry Christmas
Henry Joe: The Soveriegn Funds are selling stocks (sometimes including but not necessarily US stocks) to raise cash to offset their reduced oil incomes. The money is not being raised to buy stocks in the US. These are net sales not churning so you should not expect this activity to support the US markets.
Who’s really going to worry all that much about the markets during the holidays? Merry Christmas and Happy New Year to all.
I’m dressing my windows! Jim
Assume the $45T economy is driven by consumers. Assume most of the wealth in the US belongs to the generation 55 to 75 years old. Recognize that most of them will be invested in fixed income investments, e.g. bonds, CDs, money markets, that are tied to the interest rates. Note that someone that is retired will not want to cut into principal but will manage their spending to fit within their earnings from interest or dividends. (These folks remember the 1930’s Great Depression.) Now have the government artificially depress interest rates and thus the earnings of that generation. Is it any surprise that the economy is not robust? Imagine if the interest rates return to “normal”, older folks start spending, companies thrive to offer services and products. And younger folks have jobs and can actually spend too. Am I missing something or do all these economists not see the forest for the trees? p.s. I am in that group and will continue to be frugal until I can see a predictable safe future, free from the thieving wealth re-distribution crowd.
Mike,
Those that lived through the First Great Republican Stock Market Crash and Depression, of 1929 know that FDR lowered the interest rates, outlawed the ownership of Gold, began the “New Deal” (Social Security and the WPA/CCC camps), passed the Glass-Steagall Act (which stopped the types of trading that brought the Crash and separated Banks into Investment and Savings (with the FDIC)). He also saved many of the banks…
Obama did basically the same thing after the Second Republican Stock Market Crash and Depression of 2007 (brought on by the same types of trading that brought 1929, thanks to the removal of Glass-Steagall in 1999 by the Majority GOP Veto proof Congress), but could not get the WPA/CCC programs through because of opposition from the GOP. That is why this recovery has been so slow for Main Street…. It would appear that the Banks where far more important to the GOP that the 97% that were suffering under the latest Depression, aye?
Eagle495 is absolutely right! Tell it like it is, brother.
Always enjoy reading all your comments. I have been with the weiss group long years. Trusted Larry with the new gold prediction ( down into Year end), so far it goes the other way for some reason. Nobody can tell from day to day how it will go exactly for the reason of “Hidden Sellers” the market appears very rippy to me, it is scary, as it lacks the feeling of stability it might have had in the past. Maybe this was also not real. Lets just be more watchful, pay closer attention and trust in some “LUCK”. Wishing all the very best and blessed christmas and new year revving up the positive thinking.
Speaking of “hidden sellers”, Why does the price of gold keep trending downward, when it ought to be rising? Who has the hugest national debt? Who (theoretically, at least) has the most gold? Who hates the stuff the most? Who conceals the true size of the gold stockpile, without a public accounting? Do I hear a bugle playing “Taps” from across the river in Arlington Cemetery?
Chuck,
With all due respect, why do you think Gold should be rising right now? I’ve always believed Gold indicated Inflation (of which there is currently none) or the possibility of a World War (of which there is currently little risk). I’m reminded of the April 14, 1987 Gold Top when the risk of war has sky high (along with Gold) as “the window of vulnerability” was closing. We had hoped the ruse known as “Star Wars” would work….. By the end of April, we knew it had worked as Gold fell through the floor…..
Eagle. we DO have inflation – inflation of debt. Debt is close to running away, throughout the world. if we don’t start getting it under control, it will soon burst in the biggest bubble ever. If we control it, as nations are trying to do, we are screwed in deflationary ways.
By the way, as Martin Weiss mentions in his comment today, there IS the possibility of a World War – a three way war, and that is as scary as the debt bubble.
Chuck,
Again, with all due respect, much the same thing was said as FDR pulled our nation back from the Stock Market Crash and Depression of 1929…… As the economy repaired itself, the fear of a debt bubble was erased…
Currently the economy (without the WPA/CCC thanks to our GOP friends) is slowly getting better….. I’m not worried about the debt bubble bursting… It is just taking longer on Main Street thanks again to our 3% and Bank loving friends from the other side of the aisle….
your the king of b/s eagle495
Hawk,
It is “You’re”…… Amazing how you can claim to know about economics reality and yet have such a hard time with spelling… :(
When the debt bubble bursts, you had best have a secure store of tradable necessities or (best of all) skills, or you are in deep doo-doo.
Ah ha, And how has that transferred to your investment returns Hawk? In the worst way, you need to study economic history if you want to do better…. :(
the only reason why the economy was repaired back in the depression was because of global war ww2 the whole world was shattered and burned or blown to bits except one nation the united states and the united states was technically in a recession until we entered world war 2 ourselves and since we were the only nation without feeling the effects of war on our shores we were lucky we were able to manufacture planes boats trucks cars carriers guns bullets cannons everything imaginable and so our country prospered while the rest of the world reeled under war
If there is a WWIII – for 3 way- we won’t come out of it unscathed, any more than anyone else will. Our productive capacity will be about as much destroyed as any other nation’s. Our population will be about as reduced as any nation’s, also. Assuming anyone is left, that is.
Chuck,
You stood duty… Do you really think there is a tinkers’s chance in hell that there is going to be a three way war? If my memory serves me right, I don’t believe Martin ever stood a day of duty…. Do I think that gives us insight? Ya, I do BIG Time!… :(
It is 10:30 p.m.pst. All hell is breaking loose in markets and I’m skeered in my tummy. Am I watching the ’29 crash all over again