Today was a day when “Everything” sold off. Stocks. Bonds. REITs. Emerging markets. Auto shares. You name it. The Dow suffered its worst one-day decline in almost two months.
Market Roundup
The question many on Wall Street are asking is “Why?” And my answer is simple: This has been, as I’ve said many times before, an “Everything Bubble.”
The single, unifying catalyst driving the price of assets of all kinds has been excess central bank liquidity. Anything that suggests the so-called monetary stimulus will level off, or worse, be withdrawn, causes tantrums that impact all the assets that have been swept up in the mania.
Just look at the catalyst for today’s crushing: The European Central Bank refused to extend or boost Euro-QE at its meeting yesterday. That got the ball rolling. Then Boston Fed President Eric Rosengren followed up this morning with hawkish talk about asset overvaluation, and laid out a case for another rate hike in 2016. This is noteworthy because it follows up a devastating speech he gave several days ago highlighting the madness going on in commercial real estate which I pointed out here.
Anything can happen, of course, especially with more Fedspeak next week and with both Fed and Bank of Japan meetings looming later this month. But there’s no arguing we’ve just come through a period of extraordinary calm and complacency in the markets. Now, three major trends are threatening to break investors out of their torpor …
Trend #1: Interest rates are starting to rise. Not by a huge amount, mind you. But the bond market bacchanalia of the past couple of years is showing signs of getting long in the tooth.
Trend #2: The economic backdrop is deteriorating again. From manufacturing to services to jobs, the rebound we saw in June and July is starting to peter out.
Trend #3: Bonds and stocks are starting to trade in the same, rather than opposite, directions. You’d typically expect money to rotate out of bonds and in to stocks in a bullish economic environment, or you’d expect money to move out of stocks and in to bonds in a bearish one. But over the past few days, both asset classes have sold off. That’s a new and potentially troubling development.
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| When stocks and bonds move in lockstep, then what’s a trader to do? |
My advice: Make sure you have stop losses under your positions, especially in some of the high-flying sectors of late (Safe Yielders, emerging market stocks and bonds, tech, etc.). Use inverse ETFs and select put options as downside insurance or profit opportunities (I’m getting very busy again in my more-aggressive All Weather Trader service, which you can get on board with here.
Most importantly, for your longer-term funds, continue to invest with an emphasis on safety – just like I do in my Safe Money Report. That should help you make it through this period of increased volatility in solid shape.
So what do you think about these emerging trends and today’s beat down? Should we be concerned about what’s going on in the interest rate markets, or how stocks AND bonds are selling off in unison? Or are markets going to find their footing again and march higher into year end? Let me hear about it in the comments section below.
Until next time,
Mike Larson
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The markets have been mired in a tight range for a while. But they’re now showing signs of weakening around the edges. Is this the start of something more? If so, what forces could be driving it, and where is the underlying economy headed? Those were some of the questions you attempted to answer online.
Reader H.C.B. said that he expects to see more volatility, with perhaps a positive bias into year-end: “The big ‘risk-on’ move may be right around the holidays this year and into next year. Ditto with gold miners. If U.S. equities are on fire, emerging markets will also be on fire. International stocks may go from the weakest asset class of late to the top of the pack in so many months. Time will tell.
“Energy and the U.S. dollar are weakening for now, adding fuel to the fire. It’s going to be a wild roller-coaster ride for many investors over the next few years. Better buckle up.”
Reader Mark sounded more pessimistic though, saying: “The U.S. and global markets have been one big lie for the past 10 years due to central bank, Fed, U.S. Treasury, IMF, and world governments’ manipulation and intervention. The Dow, Nasdaq, and S&P are all overpriced and will collapse to fair market value, which will probably mean sinking by 60%.
“Real economic data such as GDP is in recessionary territory, with the awful labor market data, such as the labor-participation rate, at all-time lows. This will end badly.”
Speaking of the economy, Reader Al said: “The services-industry decline scares me more than the manufacturing-sector decline. We, after all, have become a services-industry nation, having given up our manufacturing to China and others. Hopefully this is not a trend, but an outlier situation for now. Global economic decline overall has possibly affected our services industry as well.”
Meanwhile, on the subject of interest rates, Reader Todd S. said: “Despite all that has been written about negative yields, I still find myself experiencing brain freeze every time I contemplate them. It amazes me that one party – either a government or a business – can guarantee to return less money in the future than an amount borrowed today, and find someone else to accept the deal.
“I eventually find myself wondering if it’s possible to compete in this market by borrowing a sum today, and promising to return a smaller amount tomorrow, rather than several years from now. It seems like a person with the integrity to follow through on the promise could make this work.”
And on oil, Reader Ross L. said: “The oil-market chatter is just that. A few weeks ago, Iran mentioned they may come to the OPEC table to curtail production and the price neared $50 per barrel. Then it dropped around 10% to the mid-$40s as reality took hold once more. There is so much baggage between the largest producing nations that I wouldn’t bet a nickel that they would be able to cooperate to cut production.”
Thanks for taking the time to weigh in on these diverse topics. The interest-rate situation is so tough to comprehend precisely because it is so unprecedented. There are signs the devil’s bargain between central bankers and bond buyers is starting to unravel, though, as I mentioned earlier.
When it comes to the economy, all the evidence I’ve seen suggests growth is decelerating again here in the U.S. My cyclical work tells me a recession driven by tightening lending standards is the most likely scenario for later in 2016 and 2017. But as always, time will tell.
Anything else you want to add to the debate? Then use the discussion section as your outlet.
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Speaking of interest rates, Japanese bonds have gotten crushed in the past few weeks. They just suffered their worst sell-off in 13 years amid worries the Bank of Japan is losing control of that nation’s bond market, and fears the BOJ could modify its QE program in unexpected ways a couple weeks from now.
Megabank Wells Fargo & Co. (WFC) agreed to pay a massive $185 million fine as part of a new settlement with federal and state regulators. They alleged company employees illegally opened hundreds of thousands of credit card and bank accounts for customers in order to get credit for hitting aggressive cross-selling targets set by management. More than 5,300 employees were let go as part of the probe.
Rogue nation North Korea carried out its fifth and strongest nuclear detonation test to date overnight. The 10-kiloton explosion is part of a series of tests North Korea has conducted since 2006 in an effort to come up with a warhead it could mount on a ballistic missile.
U.S. Secretary of State John Kerry and his Russian counterpart Sergei Lavrov are meeting in Geneva, Switzerland, after all. They previously couldn’t agree on whether to meet about Syria or not amid tensions between the two countries. More than 280,000 people have died in the brutal Syrian civil war over the past few years.
What do you think about the reversal in bonds over the past few weeks – is this a temporary phenomenon or are central bankers losing control of the monster they created? How about the Wells Fargo settlement – is it something that would prompt you to stop doing business with that bank? Any thoughts on the latest geopolitical turmoil in Asia and the Middle East? Share them in the comment section when you get a minute.
Until next time,
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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My advice is to sell premium while the implied volatility is elevated. By mid week you can unwind.
When is a good time to buy how low do you think the markets going to go. I put a stop loss on all my stocks
greed is the only word comes to my mind. what stocks i have wouldn’t wet a gnats eye lash. but from 200 till the last report i was sent to me my small number of stocks went from about $4,000.00 to about $ 160.00. and i m a retired widower.living on disability due to health reason;s. what is it can i do? the shares i began to buy in the early 90’s was supposed to be to help me when i did retire.but due to my health i had to take early disability retirement.. now i;m going to have nothing left by the end of 2016.
I dont know what it was,thursday my acc.was all cash before the close bought ZSL,DUST ,UVXY,thought about TBT but thought naw they might head for TLT what a silly billy,now Ive just got to try and keep it..Monday who knows.A couple more weeks of this, might change my name to Warren B.
What I think everybody misses or refuses to recognize is that all sectors of the market are beginning to factor in the possibility of a Trump presidency. There’s probably foreign selling too anticipating world-wide dislocations. Watch the polls. If they tighten even more watch out.
Better be long on Monday. Just 9/11 anniversary. If nothing. Up 200 on Monday.
The “market” has been divorced from earnings, business conditions and conservative economic projections for some time. Today was simply a minor catch up step in the direction of reality. It will not be the last.
That little dutch boy trying in vain to plug the holes.
The white rabbit.
The Cheshire cat up on the tree limb.
That’s all the state changers I have on that for the moment.
Depending upon net worth and years to retirement I suggest taking at least 20 percent of a persons portfolio and put it into 3 month cd’s. The balance should be invested in consumer staples,telephone ,utilities,drug,Reits and banks that yield 3% or more,reinvest the dividends (dollar cost averaging) and go to sleep. History tells us over time the s&p. 500 averages about 7% so younger investors should take at least 50% of their money and invest it in the s&p 500 index and then take 25% and buy good dividend paying stocks . The remaining 25% can be invested in riskier faster growing companies like Facebook Amazon etc
You haven’t said much about the weakness in the Italian banking sector. I am still expecting it to be the center of the storm in the next banking crisis. Can you bring us up to date on this?
I have a feeling that John Kerry will again be duped by the Russians. The Russians back the Syrian government and could care less about Syrian citizens. Perhaps Kerry should talk to Lavrov about North Korea as well since Russia may telegraph the a position regarding North Korea’s rogue ways. In my opinion the USA has been way too soft regarding both matters. Sending Kerry anywhere usually means further USA concessions. To make matters worst, we need to wait ’till the next President of the USA takes office in order to effectively establish any real foreign policy. Obama has “both feet” out the door.
Makes sense
All excesses, if not stopped, are sure to exhaust themselves over time.
I believe that most of the data this administration has put out has been corrupted by politics and that the unemployment rate and labor participation rate are not even close to being accurate. They have been reported based on what this administration has wanted reported. So long story short most of the data that is released is garbage and that the USA is in a slow slide to the bottom until fiscal sanity takes hold. The only thing that saves the US is that Europe is worse off and so is Japan. How can the dollar slide if other currencies are in worse shape. No clue how this will play out but gold and silver will always have value. Unless the government takes it away too.
Could low jobs data now be aimed to support the Fed from raising rates in September which wiould make the market crash, only to be followed with offsetting good numbers in the reports for the months just before the election? I would not put anything past this administration, they make Watergate look like child’s play.
Could be….but if it was a Republican administration, they’d be doing the same thing….difference is the repubs will never again win the White House with their antics! The Party is Kaput!
Maybe they can raise the terror alert level like the previous administration did prior to the election. Even now the corporate media is trying to sell North Korea as a threat even though they are more than 70 years behind us in the arms race.
Hi Mike
Friday’s figures are interesting. Wonder if it is a turn or a trend?
Well the Dow didn’t lose 5% or crash below 18,000 so this could be the market’s two minute warning. Best to pay attention and be ready to make the field goal in the seconds that remain.
Suggestions have been made to leave WELLS-FARGO BANK . Please give me a
suggestion—— like Chase ? ? ? ?
Mattress Firm?
Once America is great again, the economy will boom, and the market will soar.
That may take a decade or two before we see an improvement in overall real economics. To much debt and corruption. The cleansing process may take 10 years and even then things will never be the same due to a lower standard of living.
Your looking in the rear view mirror. Watch the windshield. Negative interest rates have never appeared in 5000 years so its a stretch to think America will be great again. America will only be as great as their bond holders will allow. Eventually markers are called in or true interest is asked for for shaky debt. The 50-60-70-80s were days of greatness not today.
All this might end badly at some point, but we are not there yet. My view is that the Fed governors open their yaps and talk about rate increases in a strategically planned manner to purposely cool off the markets. The Fed cannot and will not raise rates in Sept because it could cause a correction which could end up putting Trump in office………and given that most of the Fed members are Democrats, they don’t want to be responsible for a Trump presidency. Meanwhile the economy is cooling down, so by the time they are REALLY ready to raise rates, the economy will require that they instead lower rates AND talk about starting a new round of QE. This market doesn’t move based on fundamentals, PEs or anything else. It is entirely manipulated by the Fed. Just wait until the Fed meeting in two weeks when they announce no rate increase……..and the market will be close to its highs again in no time. Also, the Fed absolutely cannot continue to support a strong dollar and that is another reason why they will not raise rates. They NEED inflation to inflate away the national debt.
A “strong dollar” is actually a less weak currency. It is the least ugly of the ducklings. The path to a “strong dollar” is being last in the race to the bottom.
It’s difficult to figure the FED suddenly getting religion. With the elections two months away and the economy growing at 0-1%, raising rates, even 1/4% means nothing. Why bother with the market action hinged to every word from the FED. It is so stupid. Several times it appeared that the party might be coming to an end and then it doesn’t. But, I still believe that the true value of just about everything is so convoluted as to be completely untrustworthy. Central planning from the leftists is wrecking the country.
Yes the Fed does seem to have a Charley Manson hold over investors.
This selloff was so easily predicted by the technical indicators. Over the past 2 days, the market was run up at the close to the highs, to post numbers, then sold off sharply overnight when the artificial support was gone. Yesterday’s close was weak in particular. Looking at the daily and the 60-min charts and indicators, yesterday’s late peak at 219 in the SPY was a classic sell signal – all the indicators had turned negative, this move to the overhead resistance at 219 was the last gasp for the longs to get out, and for the shorts to get short. What was surprising, was that the double bottom at ES 2127 only got a 6 pt. bounce, before getting hammered into the close, to new lows at 2115. Given the buy signal on the 20-range chart, and the propensity for someone to regularly paint rallies on a Friday afternoon, this was an enormously bearish sign. Yes, there will be rallies, but the sell signal is clearly in control now. Sell rallies, cover on dips. Don’t pick a bottom – we’re in a downtrend, folks. The uptrend is over. TPTB tried their best to keep this pig up until the elections, but you can’t deny momentum. The smart money is bailing (today). There may be a point to buy at some time, but it won’t be anytime soon. Don’t get suckered – today was enormous technical damage, and it’s not a buying opportunity anytime soon. This selloff was a long time coming.
The way the world economic conditions are today the markets should be down by 50% not just 394 points that is a joke. I am wondering if the dark state the Fed stepped in to ease the downward spiral after all the stock market is the Fed’s baby. The Fed continues to nurture its baby while kicking us savers/seniors in the posterior. Stanley Fischer stated it that low interest rates must prevail even at the sacrifice savers and seniors. So much for being all things to all people. I guess this is the Fed’s way of sending us to Siberia to rot. Now we know how the Russians feel.
What does the current Golden Ratio hold in store in the future for commodities such as corn and soybeans?
The change from being overrun by plenty of food stocks will change fast and swift. I think Mother Nature will play a hand in that. Dig up your useless lawn and plant vegetables. If your going to water and fertilize something make it something useful
Those over 5300 employees of Wells Fargo who were fired stole money(bonuses) from the bank and also from the banks customers.
Why are they not charged with fraud and theft? Crooks should go to jail.
Its not crooked its called shrewd capitalism. They keep probing the government looking for chinks in their armor that they can penetrate. Sometimes they get caught with their fingers in the cookie jar and get a small financial slap.
A law is not a law when those charged with the responsibility to enforce it are on the same side as the crooks. This was demonstrated in 2008/2009 when thousands of criminals on Wall Street were not sentenced to millions of years in jail.
Already dropped Wells because of how they treat their employees and their agenda. Watch their ads.
I really hope they are hit with the shame blame.
We have now reached a point in time when the only thing left to discuss is the extent of the coming stock, bond and real estate decline.
you’ve been hitting a lot of home runs lately, larson. but you may have hit a grand slam on this “everything” call. even gold has lost its luster. the only thing i can think of to go long right now is the vix, but that’s tough a day trade. i’m sure glad i took the summer off.
Since we have been thinking the financial universe is absurd for 15 years it seems now could be the time everything sells off. It should be if there was any common sense in the market. On the other hand most reading this column have been thinking there isn’t any common sense in the economics of today.
Everyone in the world including all the paid phDs running the fed and banks is beginning to wonder when reality will hit. I read today an article on where China is going to get rid of it’s now estimated 250% of GDP debt crisis. Funny how not too long ago it was going to save the world with it’s consumption. Liberal dreamers little plans have played out exactly wrong and it won’t be too long before the big sell off commences.
Mike
Hate to say, I told you so. Except for one thing, the bubble did not bust yet, it is only a fart with a little leak. The diarhea is yet to come, a signal from Obama will come just before the election by a request for a meeting with both Trump and Clinton. Yes, remember the call in October 2008 from Bush to Obama and McCain to come to the White House for a brief on economic situation.
Stay tuned and remember
Bill
Nothing happens by accident. The remarks by the Fed governor, the action of the ECB, and comments today from a major investment group leader with regards to raising interest rates seem too coordinated to be coincidental. The question that should always be asked in cases like this is “Who stands to benefit most by these comments and opinions and actions that led to the major sell-off today? Are they linked somehow to the people who made the comments? When statements like ones today can move the market that much, someone is benefitting.
How many of the people who were fired at Wells Fargo were supervisors???
I put stop Loses on my stocks when do I buy back
Don’t try to anticipate the market upturn. You never try to catch a falling knife. It will cut you 9 times out of 10. Wait until the trend stabilizes and starts improving. There will be plenty of bargains to buy then.
It sounds like everyone is running to cash. The dollar should go up until this run peters out. Foreign money is also moving into the dollar. when this levels out, the dollar should dive, unless there is a run on bank cash outlets. If Banks try to restrict outgoing cash demands currency exchange might freeze up, and credit lines might collapse all together. This “bubble burst” has already been predicted and all it might take is for the electorate to vote left, and with more of the same , one can’t expect sanity to reign!.
Al G.
I am real happy today I finally lost $1300 in the precious metals market after making $5000 since June 27th. I was really afraid that I would not get the opportunity to buy more at a cheaper price. I have put in buy orders on all my favorite precious metal stocks at 15% below todays prices and if I am lucky I might get them filled next week. My faith in Larry has been a bit renewed after this past week. I see you mentioned the Wells Fargo debacle and of course 5300 workers suffered while the instigators of this scheme seem immune to punishment. The Global Greed award goes to Deutsche Bank who is finally settling up with the US government over mortgage fraud. Their total fines now exceed the 9 billion mark and the government does nothing as bank fines are the gift that just keeps on giving and the banks no doubt profited 2 to 3 times more than the fines levied against them. Its not called criminal any longer just shrewd capitalism. Then there are the laws that govern us little people.
The goal of the Fed is to discourage the purchase of gold and gold mining stocks. In the
best tradition of the Rothschild kabal of which the Fed is a part, money is
to be a fiat creation of the kabal. Constancy of value is not desirable to these
criminals. In 300 BC an Athenian hoplite received daily 1/10 of a gold drachma.
In today’s money that is around $145. That is approximately what today’s Greek private
costs. After 2300 years constancy. Persian currency of that time also retained
its value. Anton Meyer Rothschlld famously said, “Allow me to control the
currency of a nation and I care not who makes its laws.” The Federal Reserve
is a bad thing whose members, unelected, daily ruin the savings of thousands of private citizens.
We need to get rid of the Fed by any means necessary. The simple method of
returning to a gold standard advocated by Steve Forbes is a step in the right direction.
But the individual members of the Fed are worse than officers in a drug cartel.
They are ruling and ruining America.
from TCB,
I have moved very defensively, most of portfolio in selected B -BBB corporate bonds due in 1- 6 years with yield to maturities of 5-7%. Then cash to support selected option plays. If it appears, close to election that Trump has a chance to win I will move out of options, expecting big problems after election.
It is plainly speaking absurd the charade of the Federal Reserve with their endless comments about interest rates as well all the previous QE announcements. It should be banned. The only thing they really achieve are “speculative market moves” that taint and distort the natural functioning of the stock market and all participants, nothing to do with true “former normal” valuations changes, is the Fed “words” that alter artificially the true function and activities of Public Traded Companies, “speculation” is much riskier than “investment”.
Mike,
These fools are still talking up stocks, bonkers?
It amazes me at why “fedspeak” is even tolerated…….it is so manipulative and political in the same speech. Markets should stand on their own and not a “tool”……..Interest rates coming up and gold falling…….inflation will soon be here and gold has to rally i would think.
I agree with the professor…The gold standard or commodity based currency must return or we shall soon see “digital” currency in which a nation becomes enslaved by a government in control of the “digital currency” “for itself” and “by itself” and its employees upon the backs of the soverign through taxation by “confiscation”. If I have gold or a gold back currency in my pocket or safe, the “search and seizure” protections can be enjoyed……..if the government “confiscates” by mistake or or on purpose, it is us who suffer…..USA incorporated is here and we are using its “script”.
It would seem, just as a matter of common sense, that bond rates would Have to begin rising shortly, or there is no reason to buy the bonds. After all, if rates are not somewhat higher than inflation, an investor knows he or she will lose value during the period of the bond. Only a fool would buy such bonds, knowing the money and interest received back would buy less than at the beginning of the term.
Actually, NIRP, ZIRP, and even L(ow)IRP are scams, and central bankers who perpetrate such scams should be brought up on charges, and subjected to force of law. The are criminals by definition.
Do you foresee establishment of a new global monetary system ??
IN THE USA NO ONE CAN FUNCTION IF HE OWES MORE THAN HE CAN PAY BACK. THE USA IS IN BANKRUPTCY AND CANT EVEN PAY THE INTEREST THAT WE OWE. OBAMA HAS ONLY ONE TALANT, WRITE A CHECK. WE NEED TO CUT OUT ALL OUR GIVE AWAY PROGRAMS, CUT OUR INCOME IN HALF WHICH WILL CUT OUR COSTS IN HALF. QUIT PRINTING MONEY. IT ONLY DEVALUATES OUR MONEY. ILLEGAL IMMIGRANTS WORK AND DONT PAY TAXES. THE AMERICAN DRAWS UNEMPLOYMENT. WE NEED TO BALANCE THE LOCAL STATE AND FEDERAL BUDGET AND THE STOCK MARKET WILL BE FINE.