You’ve probably noticed that I’ve written about several more obscure, esoteric corners of the capital markets recently. It’s not as simple or as easy as just covering what Apple (AAPL) or General Electric (GE) shares did on a given day, or how much the Dow Industrials rose or fell.
Market Roundup
But there’s a very simple, solid reason for that: Out-of-the-way places can yield major market clues — the kind you won’t get if you just watch a few minutes of CNBC or skim The Wall Street Journal website at the end of the day.
For instance, I’ve spent time covering all of the following …
> The interest-rate swaps market.
> The high-yield debt market.
> The leveraged-loan business.
> The London Metal Exchange.
> The private share market for technology firms and startups.
> The market for foreign companies that trade here in the U.S. as American Depository Receipts (ADRs).
The one theme tying them all together is that they’re all sending out cautionary signals — signals I believe we need to pay attention to.
Just go back to the last major market top and downturn in the credit cycle. I noticed, and wrote about, a handful of high-risk, obscure subprime lenders that were starting to get into trouble in late 2006 and early 2007, even as the mainstream media wasn’t paying much attention.
Specifically, it started with a relatively obscure company called Ownit Mortgage Solutions going belly up in December 2006. Then it was the unfolding disaster that was New Century Financial in February 2007.
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| There were plenty of warning signs of an impending disaster in financial markets for those who cared to look from 2006 onward |
Then it was the behind-the-scenes deterioration in the markets for mortgage-backed securities, asset-backed securities market and collateralized-debt obligations, and the financial system overall. As I warned at the time, these events foretold disaster for financial stocks and the broader equity markets.
The Dow, S&P 500, and Nasdaq Composite tried to ignore those warnings — rallying for several months. But they ultimately started breaking down in late 2007, and didn’t look back until the bear market came to a close in March 2009.
Investors who listened to these warning signals from the more obscure corners of the capital market, and took action to protect themselves before the broad market collapsed, could have saved fortunes. Those who bought select investments that rise in value when vulnerable stocks fall, could have made even more.
Now I am not saying that every single stock or credit market cycle is the same. I am also not now predicting a repeat of 2007-09. And you can never be 100% sure how policy responses or future developments could change the outlook.
| “I’m not the only one who’s starting to notice these weird moves.” |
But I feel it’s my duty to let you know about the cautionary signs I’m seeing in out-of-the-way places and markets. I’m not the only one who’s starting to notice these weird moves, either — as these recent Bloomberg stories here and here make clear.
So my best advice is to keep your eye on my Money and Markets updates. The latest minor daily fluctuation in the Dow might lead the evening news. But there’s a lot more going on out there, and those events could hold the key to the next major, long-term move for stocks.
What do you think? Are the signals coming from interest-rate swaps, foreign metals exchanges, and other less-followed corners of the capital markets important? Or should our attention be focused elsewhere? Do the lessons of the last major credit cycle matter? Or are we in a new world where those pre-crisis market moves no longer drive stock prices? Are you seeing any esoteric bearish … or bullish … indicators that I haven’t covered?
Don’t hold it in. Share your thoughts online here.
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Yesterday, I shared some of my personal thoughts about traveling to Europe and asked for your views in the wake of the French terrorist attacks. I’m glad that many of you responded.
Reader Bonnie said: “I too love to travel. I was a flight attendant for 12 years in my earlier days and never stopped going places. I must say, though, that what is happening in the Middle East and Europe these days has left me cold on planning a new trip to that part of the world.
“I went to Turkey 3 years ago and adored it, but don’t plan a return anytime soon. I think I will wander south to Argentina and Chile, perhaps Colombia, and wait and see if we can get a handle on ISIS before venturing to Europe. There are also so many places left in the U.S. and Canada that call to me as well.”
Reader Steve C. said: “I’m planning a river cruise through much of Europe’s problem areas next fall and not sure it is the wisest thing to do. But we will go anyway, since it is prepaid. If I had it to do over, we might have gone somewhere else.”
Reader Jean H. offered some perspective on the threat to personal safety from terrorism by saying: “You have one chance in 39 of being a victim of violent crime in Camden, N.J. Paris and its suburbs have over 12 million people, and there are approximately seven million visitors each year. Somehow I’d feel safer in Paris than in Camden.”
Reader Mary added: “I am much more vigilant, everywhere. I am so glad I visited Italy last summer, and I would love to see more of the world. But the bombers like to target civilians. I enjoy a glass of wine, music, and sports, so it is likely I would be somewhere where terrorists would leave a backpack or shoot people. Sadly, I’m probably staying home.”
Finally, Reader Chuck B. offered this advice: “If people hunker down in a hole, so to speak, as a reaction to terrorists, then the terrorists win. Everyone should go on about their normal lives as much as possible.
“Keep your eyes open, of course. You should do that in any case. But don’t change anything you don’t have to. Live, love and laugh as much as you can.”
Thanks for weighing in. I’ll be monitoring data on bookings, cancellations and earnings from the travel industry in the weeks ahead to see how things shake out and whether there are any investment opportunities. So stay tuned for more updates as we continue to get news on the investigation in Europe — and feel free to add any more comments you might have below.
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French police assaulted an apartment complex in a Paris suburb early today, killing two and arresting seven. They were seeking ISIS operative Abdelhamid Abaaoud, who was believed to be holed up in the region. A woman reportedly shot at police before blowing herself up in the raid.
President Obama warned China against continuing to bolster its military presence in the South China Sea. Speaking at the Asia-Pacific Economic Cooperation summit in Manila, he said China should back off its base-building and island-fortifying activities there.
Housing starts fell 11% in October to a seasonally adjusted annualized rate of 1.06 million. That was the weakest since March and below expectations. But building permit issuance rose 4.1% to a 1.15 million SAAR. Starts were held back by the multifamily sector, which includes buildings with units for rent or sale … while permits benefitted from strength in applications to build single-family homes.
Ever paid for something at a festival or small business using a Square device plugged into someone’s smart phone? Well, the company behind that technology is going public — and the market reception will be closely watched.
That’s because Square’s private-market valuation soared in the easy money era … but it’s being brought back down to earth by the tightening of the IPO market and worries that tech valuations got out of control. It’s also losing money hand over fist, even as revenue is growing sharply.
Do you think Square is a good buy? What about the decline in multifamily construction — could that be a sign the rental property boom is beginning to cool? Any thoughts on the U.S.-China tensions Obama discussed in Asia? Let me hear about them below.
Until next time,
Mike Larson
P.S. Larry Edelson just released his new report, “7 Commodity Windfalls for 2015-2021,” that could prove to be the most profitable report you read all year.
It’s free. There’s no obligation, no strings attached — and it could make you very, very rich.
Click this link to read it now!
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.
{ 29 comments }
Hi Mike
Returning confidence can also come from obscure places. To see visions of both Russian and other world leaders sitting down calmly together looking for a combined solution was refreshing. Although I have concerns with our current administration on other matters, to decide to not put boots on the ground is a good thing. Remember these terrorists have no borders and a strategy that keeps them contained as a target is helpful.
The only thing that can stem the flow of Syrian immigrants to the US is a strong protest from the illegal Mexican immigrants. Jim
Hi Mike, Turbulent times indeed- we are teetering between deflationary forces and some inflationary forces; but alas the deflationary forces are most active in the real world economy and the inflationary forces are mostly in the form of investment Bubbles and we all know what bubbles do eventually. I am betting on a sharp downturn followed by real “helicopter” money to create the inflation the FED system needs to keep it from imploding.
i love the fact that you’re a bear, mike. the more experts i see bearish, is the more reason for me to be bullish.
we have dirt cheap oil, rock bottom interest rates, the fed is printing m2 money full tilt, plus we’re in a correction. call me a contrarian, but this looks to me like a buying opportunity handed to us on a silver platter.
$1000 gold, you could be right. It doesn’t make sense, with all the interest rate shenanigans going, but I see signs in some of the charts that oppose logic. Dow Transports, for example are close to starting upward, and if the S&P 500 moves above 2134, it would go to a new high. I wonder what Larry Edelson is thinking. He calls for a bottom in commodities, but hasn’t said anything about stocks. Yet, it seems likely that if commodities start up, the stocks might also join in. We will see. Good luck.
The markets don’t have to make financial sense. With rates at zero, flows alone can drive the markets. That means the markets can do absolutely anything. But people with money need a place to put it, and that is what has been driving the stock market higher. History suggests that the market will go higher until the general public (the suckers) are all-in and the big boyz are selling. Then it will crash. So far, the public has largely stayed away and let the big boyz trade with each other.
the bear argument is always the logical argument. it always makes the most sense. but the bears are almost always wrong. once in a great while the bears are right and they become famous, like roubini, faber, etc., but look how many times they were wrong before they finally got it right. the bulls are almost always right, and the rare occasion when they get it wrong they seem to lose credibility and go to the wayside.
i watch the transports too, (iyt & djt). i haven’t decided if they’re useful or not. so far, i’m leaning towards not, as high frequency trading has all funds and markets turning in unison like a school of fish or flock of birds. watching one market is like watching all markets most of the time, and the transport seem to have lost their ability to be the proverbial canary in a coal mine.
Please improve the new format, nice experiment, but it isn’t working near as well.
Your format department failed on the layout. Sorry.
Hi Bryan, I’m the publisher of Money and Markets. Could you give me some details on what failed and what you’d like to see in the layout?
gold has been stuck in the same downward channel for a couple years. it’s a sleeper until there’s a breakout. is there any point in discussing it until then? if i were a gold miner i would be worried.
a rate hike is coming next month, or the next month, but it’s coming. if gold can’t hold its head up now, what going to happen after a rate hike? if i were a gold miner, i’d start looking for another job.
The New World Order as mentioned by many politicians has a plan to fix the world of many many problems.So there must be a created problem in order to fix it primarily.
They rig the markets,they also rig global dramas so to have a job in the future,and retain that position.
Is Isis related to the “new world order”,who knows. All we know it shuffles the cards for future events,so they will appear the hero. “There must be disorder so they can bring order”,the stock market included.
Max
You are really on to something here, Max! I agree with your perseption of the powers that be creating problems that they can then “fix”!!
Like Global Warming! Jim
oh yea but GLOBAL WARMING didn’t pan out to well for the libocrats so they had to change the name to ” CLIMATE CHANGE ” just to keep saying the sky is falling the sky is falling
Hello Mike,
The global picture is definitely getting more unstable. There are too many loose ends, any one end unraveling could set the whole thing off. I think cash is the place to be with at least 10% in gold (depending on your age).
The Islamic fascist situation will continue until the PTB realize they are fighting a religious war (similar to the last 14 centuries). At the moment they are playing against each other, but that will change, as it did in WWII. At that time major decisions were made to end the conflict no matter what the cost on either side.
We are rapidly approaching that point.
We are living in France in the Spring of 1940, and our government is telling us the invasion of Poland was a “setback”. Jim
well what do you expect when the leader of the free world (u.s.) doesn’t want to lead….. well like Barack Obama said we have to lead by example and lead from behind I guess that’s what we get for letting a boy to do a mans job
I have unlimited web time but, the speed is restricted for the game players and your new format locks my computer while it loads.
Building permits are not housing starts. Keep in mind that a significant percentage of permits are applied for but never result in a building being built.
mule
Somehow, I think Jean H. isn’t going to be visiting Camden, N.J., anytime soon.
The “Wall of Worry” is very much intact!
a little correction and the bears act like the market is never going to go up again. we all been around long enough to know that the market always eventually returns. the return after the 2009 crash should be proof enough.
For what it’s worth, I couldn’t agree more. Jim
I paid with a ‘Square Exchange’ for a taxi ride in Buenos Aires, and Mexico City, and an HVAC repair in St. Ann, Missouri……hmmmmmm. But, I don’t see this IPO being a big one until we all go back to the barter system after paper money is eradicated and market transactions are electronic.
One has to be lucky to get somewhere! It’s really difficult to compete with big boys who can push markets up or down, and take advantage. They have more holding powers, we have less, but luck and wisdom plays some part. Good luck to everyone, brothers and
Sisters!
The signals screaming “CAUTION” are coming from all directions. Are they real or imagined? Fools rush in where angels fear to tread.