We got a strong bounce in stocks yesterday following the release of Federal Reserve meeting minutes — minutes that confirmed officials are very close to raising rates in December.
Market Roundup
Today, the market was pulled in all kinds of directions. It seems investors are really looking for clarity, trying to determine whether last week’s vicious selloff or this week’s sharp bounce are indicative of the real underlying trend.
Take the latest news out of the Initial Public Offering (IPO) market. The mobile payment technology company Square (SQ) proved to be a disappointment for company officials, who managed to sell 27 million shares at only $9 each. That was well below the projected range of $11 and $13.
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| A crush of events worldwide is affecting global markets. |
It also valued the company at just $2.9 billion overall, less than half the $6 billion valuation it snagged in a round of private funding in 2014. The stock bounced in the aftermarket … but we’ve seen those kinds of early gains fade in the past, so the stock bears watching.
Separately, the online dating company Match Group (MTCH) sold 33.3 million shares at $12 each. That was at the bottom of its proposed $12 to $14 range, though it too bounced in the aftermarket. The reduced amount of money companies are raising is a clear manifestation of waning demand for IPOs. Total IPO volume has now plunged 62% year-over-year, according to Dealogic.
In another development, we just learned that the Treasury Department is planning to clamp down more aggressively on so-called “inversions.” Those are merger transactions in which American corporations buy foreign companies and shift their domicile overseas to avoid a significant amount of U.S. taxes.
The move is often in name and mail location only. Companies usually keep their operations and executives stateside. So Treasury is planning to more aggressively target “skinny down distributions,” “earnings stripping,” and other strategies. They help companies shift profits overseas, shrink their balance sheets artificially, and otherwise get around previous restrictions on relocating.
| “Many on Wall Street didn’t know where to turn today.” |
That move could put further pressure on M&A activity, including a reported deal by Pfizer (PFE) to acquire Allergan PLC (AGN). The drug giant has been trying to put together a $150 billion deal for AGN, at a price of as much as $380 a share. But Allergan shares are trading well below that level — suggesting investors believe the deal could fall through or the offer price could be cut.
Then there’s crude oil. Prices dipped below $40 for the second time in early trading today. That put oil at its lowest level since a couple of days after the August stock market mini-crash. Other key commodities like copper continued to plumb multi-year lows.
To add to today’s confusion and mixed market signals, Treasury bond prices rallied yet again and yields fell. That happened despite a slight improvement in the Philadelphia Fed index for November, and a 5,000-worker drop in initial jobless claims … not to mention yesterday’s somewhat hawkish Fed meeting minutes.
Bottom line: Many on Wall Street didn’t know where to turn today. And it’s worth pointing out that despite all the daily sturm and drang, the S&P 500 is basically trading at the exact same level as it did a year ago. You know I believe it’s vulnerable up here, but it remains to be seen if and when the big money will wake up to that.
So where do you think we head next? Will the valuation deflation we’re seeing in IPOs hurt the broader averages? What about crude’s flirtation with sub-$40 prices? And how about the Treasury Department’s anti-inversion policies? Will that affect a wide swath of deals, or just a handful? Add your comments to these important discussions below.
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I’ve offered my take on market risks here in recent columns. In the past 24 hours, many of you took to the website to share your thoughts about whether I’m on target or not.
Reader Howard said: “Returning confidence can also come from obscure places. To see visions of both Russian and other world leaders sitting down calmly together and 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.”
Reader $1,000 Gold also sounded a more optimistic tone, saying: “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.”
Reader Andrew P. offered this take: “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. 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.”
Finally, Reader Hank said: “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.
“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.”
Thanks for sharing, everyone. It should be clear that I remain concerned about all the non-confirmations and divergences between markets, even as stocks bounce back in the past few days. That doesn’t mean a handful of select, higher-yielding, higher-rated, less cyclical stocks can’t make money for you.
But broad, aggressive bets on equities? That’s not my cup of tea here. Moreover, many vulnerable stocks with weak ratings, lousy business prospects, and economic risk are dramatically underperforming. So I’ve been zeroing in on them in my more aggressive Interest Rate Speculator service.
Any ground I didn’t cover here yet? Then let me hear about it below.
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Police raids continued overnight, with Belgian forces raiding seven separate locations around Brussels. French officials also confirmed that the lead plotter in the Paris attacks, Abdelhamid Abaaoud, was killed in the raid that country conducted yesterday in the suburb of Saint-Denis. One other person was killed and eight were arrested when police stormed an apartment complex following a tip.
Japan’s central bank refused to boost that country’s QE program at a policy meeting this week. The nation slipped into yet another recession recently, but the Bank of Japan opted to keep its asset buying program at current levels. Some analysts have warned that the BOJ has bought so many bonds, exchange traded funds and other assets that it’s destroying market liquidity.
Best Buy (BBY) disappointed investors with weak fiscal third-quarter sales, and a lackluster outlook for the holiday shopping season. The largest health insurer in the U.S., UnitedHealth Group (UNH), also cut its earnings outlook. It further warned it may be forced to exit the Obamacare insurance marketplace because it isn’t profitable enough given current rules and competition.
On the flip side, cloud computing company Salesforce.com (CRM) delivered solid results that helped send its shares higher. L Brands (LB), the company that operates Victoria’s Secret and Bath & Body Works, also managed to beat earnings targets despite slightly weaker-than-expected revenue.
Does the Best Buy outlook spell trouble for retail spending this holiday season? Or should we take solace in the results from L Brands? What do you think is next in the war on terror? And what kind of action should we expect from foreign central banks in coming weeks and months? Use the website as your commenting outlet.
Until next time,
Mike Larson
P.S. Did you miss Larry Edelson’s NEW report? In Larry’s opinion, “7 Commodity Windfalls for 2015-2021” 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.
Hurry — 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.
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let’s not forget, oil producing country are forced to pump full tilt to meet expenses – can’t let up for a minute or they face financial disaster. plus anytime the price of crude rises the frackers will move in and keep a lid on prices. not to mention, the rest of the world hasn’t even begun to frack yet, so cheap oil is here to stay. this is hugely bullish for america’s economy as we depend on oil more than any other country in the world. this extra money saved at the pump every fill up will soon begin working it way back into the economy.
The oil industry is intent on putting its opposition out of business. If that happens things will change
the weak will be absorbed by the strong. in the end only a handful of large oil companies will remain. that’s the way these shakedowns end.
It is not in America’s national interest to have the OPEC nations screw us around. If we had real leadership in this country it wouldn’t happen.
Could not agree more!
No
You don’t get it. Putting the US oil producers out of business isn’t a good thing, and that is their goal. What do you think the Arabs expect to get out if this? They want to retain their monopoly and hammer the heck out of the oil consuming nations one more time before oil becomes obsolete. You can’t park the drill rigs and layoff the crews and expect for them to be ready when we need them. They will pop us for $150-200 a barrel in the next round. These people are ruthless. There is also not one shred of evidence to indicate low oil prices are helping the economy or “working its way through”. Look at retail sales. Would we have 94 million not working and fifty million on food stamps? Deflation is killer no matter what form it takes. Jim
I should not have ranted. It’s just real tough to watch my lifelong friends and neighbors, or for that matter, the whole State of Louisiana go down the tubes because of $2 natural gas and $40 oil. I do understand that cheap gas has its benefits, just not for us. Jim
the party is over for now in texas, but the rest of the country is going to love this cheap oil. in the end, the big boys like shell, exxon, cheveron, and even the great state of louisianna, (which i love dearly and visit often), will become even stronger. the crack on oil has the oil refiners, including louisanna, just loving these big oi’ fat margins, so not all is so bad, jim.
M$AU, Come down and see us. Save you some étouffée and hot boudin. Jim
i’m always up for some good food and good fun in nola. thanks.
Thanks Mike. Here is what I see happening. Through 2015,the oligarchs and the elites from other countries have been buying U.S. assets. Because of dropping GDP’s and turmoil in places like Canada,Australia,Asia the E.U. and others, they are moving their assets to safer ground. Perception is everything. They have been driving up treasuries,real estate,equities and the dollar. We know now that the gold market is still being manipulated because gold sales have been at record levels this year. The mints keep running out of product. One thing I learned early on is there is a lot of people around the globe with a lot of money and it is headed to the States.
look for unhappy campers in oil producing countries as diminishing oil revenues can no longer support social programs that keep dictators in power. i would not be surprised to see political unrest in places like russia, venesualia, iran, nigeria, etc., like we saw happen in egypt, lybia, greece, and the arab spring. the entire world political landscape could change as these citizens have no where to turn to support themselves.
That is what Larry E. has been saying for months, Richard; foreign money buying assets in this country. The government frowns on Chinese buying strategic companies, but that leaves lots of others that they have moved into: Smithfield foods, for example. Your holiday ham may benefit its Chinese owners. The profit from the Bud you guzzle watching the Thursday night football game may go to Brazil, etc. As for gold, Chinese buyers, both government and private, have been grabbing thousands of tonnes, while somehow keeping the price from soaring as it should, but that may be about to change.
Chuck, I think you may be thinking what I am. Larry’s call on gold could well be right. From what I understand $1074 was critical support, which it broke but quickly recovered. Seems hard to believe that with the world going up in flames and chronic currency abuse everywhere, that gold is a “useless relic”. I have made a lot of money in the past with the miners, but I think I may stick with the royalty guys like Royal Gold and Franco Nevada this time. What do you think? Jim
i think the fed is going to begin raising rates next month and gold is not go to like that. gold responded favorably to quantitative easing. conversely, gold will respond unfavorably to tightening. when we hit a recession down the road at some point, the fed will ease again and gold should blast off for awhile, but once the easing stops that’s it for gold. gold will continue this downward journey until the fed eases again someday.
And if you can access Canadian stocks, Osisko might be a good choice. Miners, though could move further and faster, at least in the beginning.
Your unhappy campers could well start WW III. Jim
look for revolutions in those countries instead.
That makes me feel better! Jim
HIde and watch. You very likely will see one in Amerika.
…or america will win world war III without firing a shot, which is a real possibility.
The Federal Government has never seen a war it didn’t want to get involved in. Just for the record. I’m with Pete. Jim
it looks like we are exiting the bear trap. we are now above the 50-day moving average, so i doubled down. i hope i’m right.
When you have a MARXIST for a president who has an absolute hatred for capitalism and acts like a petulant child,,,,really? What do you expect. He and the Republican establishment piss more money away than anything I have ever seen.
The S&P500 has been essentially flat since Dec. 2014, along with other market indicators. Margins hit a new high of over half a trillion dollars, before falling about 10% during the recent correction. Still about $450 Billion, which seems a dangerous amount that will need to be covered by investors if things go against them. The 6 day collapse in August shows how quickly that can happen. The Fed is flirting with possibly raising interest rates next month, and even a small rise would be deflationary in an economy that is only growing weakly, if at all. Debt is at extremely high levels, and much of the growth we have seen is based on that debt, not on real profit. Markets, of course can rise, even in the face of considerable negativity, or decline even when everything seems hunky-dory. This seems to be a time of great market danger, though, and not a time to bet the house.
Chuck,
That is about the same time the Republicans took control of the Congress… Oh course, that could not be the reason, right?… Or maybe it is…. Hmmm…
Thought of the day: When you argue with a fool it’s hard to tell who’s who. Jim
I like that, Jim! Nice!!
Islam seems base on absolutes. You WILL do so-and-so, regardless of a situation and the consequences. Bend yourself to the ideal. The Western, Judeo-Christian society has begun to learn the consequences of such absolutism, and has started learning to adapt to reality a little better. Change the ideal, if that seems to be needed so that all may profit. We have a long way to go, but we have begun the trek. I have to think out system shows the greater promise in the long run. We just need to keep an eye out for what needs to be done, and be ready to pay the price.
Marxism, and Keynesian economics(?) are both attempts to change ideals that haven’t worked out too well. We’ll keep trying.
Winston Churchill once said that the Americans always get it right, but not until they try everything else first. Smart guy. Jim
The WALL OF WORRY is running perfectly!
I have been buying energy, KMI, commodities BHP. I’m waiting for the next panic to pounce on SLB. Oil demand is rising rapidly due to lie prices and shale production will drop quickly over the next year as the very high depletion rate kicks in. Shale oil is plentiful but horizontal drilling and fracking are very expensive. Last time the bears said oil was dead they overlooked China. This time they are overlooking an explosion in Indian demand as they exchange scooters for cars. I can’t time it like Larry but a change is coming. I also firmly believe that rising interest rates will in no way negatively impact the Stock Market as its indicative of an improving economy. Fourth year Presidential cycles are also usually very positive. M$AU has it right. Jim
fracking cost have come down considerably from about $65/bbl just a year or two ago to $45/bbl nowadays, plus horizontal distances have increase making wells more productive. these costs will come down even more as fracking improves yet again. you’re right though, this is kind of like squeezing the orange rind for a second round of juice and it will run dry in about five years, but there’s all kinds of frackable oil in the world. also consider, we haven’t really even touched our natgas or coal reserves to speak of. in addition to natgas and coal, oil will have to compete with solar, wind, electric cars, etc., five to ten years down the road as frack oil wanes. the glory days for crude oil are winding down.
My bet is on solar. Dramatic improvements in efficiency and cost are making it very competitive. Watch out for the once “safe” electric utility companies. Their days are numbered also. I agree, our energy future is very bright if we have the political will to use it. I agree, oil is headed for a reduced role in the mix. Hydrocarbons will always be handy though. That’s why OPEC is making one last big putsch. They know it too. I have a royalty in the Bakken. The well went from 400 BPD to 12 BPD in less than two years. Shale does not offer long term solutions without continuous reinvestment. The Majors have sold most of their acreage because it just doesn’t add up. Jim
You are right Jim… And we can thank Cheney/bush for awakening the world to that vision thanks to their incredible greed when they pushed oil to $140…..
Fracking is the last resort of crony capitalism
and could kill aquifers and drive up potable water prices. Capitalism is viable only if cronyism is busted up by a strong leader.
Otherwise lawless disorder will be our fate.
Megabankers are the 800lb gorilla. They are blowing up google and goldman and crushing
Miners and shippers. Dont buy the bubble but dont sell gold. Stay short base metals mining and dry shipping. If gold goes under $1000 average down and dont lift hedges in depressionary basic materials until gold is back over $1350. Never sell physical gold and silver. At $850 gold and $8 silver
copper will be under $1 iron and aluminun half of todays price. Despite appearances megabanks are not disgorging their gold vaults. Do as they do.
Many finished goods prices keep creeping up as
basic materials sub cost of production prices crush producers and force mergers. Capitulation
Is coming. Gold is cash. Hedge half.
Trump actually used the term trojan horse a few days ago referring to syrian refugee policy. If
America and the west do not reverse course pronto bad bad things will happen and when everyone says trump was right it will be too late.