I don’t know about you. But I could sure use some Dramamine after this week. Or even the past 36 hours, for that matter.
Market Roundup
Down. Up. Down. Up. The stock market pretty much lost its marbles judging by the wild swings in the hours leading up to the European Central Bank’s policy announcement, and the hours after it.
Just consider this: Futures on Germany’s benchmark DAX Index jumped from around 9,700 before the news came out to within a whisker of 10,000. Then they plunged a whopping 600 points to 9,400 in just a few hours. Then investors decided things weren’t so bad after all, and futures rallied back just over 400 points to 9,800.
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| The markets are set to get even more volatile. |
We’ve seen similar crazy volatility in U.S. stocks … government bond markets here and abroad … foreign currencies … and other assets. And it hasn’t just been over the last couple days, either. Many of the most extreme, junkiest of the junk stocks are going completely nuts.
The troubled shipping company Eagle Bulk Shipping (EGLE)? It traded for just over 40 cents in mid-February. Then it skyrocketed to as high as three-and-a-half bucks in just the first couple days of March. After that, it reversed course and plunged all the way back to a buck-thirty.
The steel firm AK Steel Holding (AKS)? It traded for around $1.60 in January. Then in early March it went ballistic, tagging $4.20. That’s a 163% gain in just a few weeks.
Then you have a whole slew of beaten-down energy names. Whiting Petroleum (WLL)? From around $3.40 to $9 in the blink of an eye. Seadrill Ltd (SDRL)? From around $1.70 to $7.50, then back to $3.50 in a span of two weeks. Chesapeake Energy (CHK)? From $2.50 to as much as $5.70 then back to $4.80.
| “We’re in a whole new market environment — one marked by increased volatility, increased uncertainty, and increasing turmoil.” |
What does it mean? It confirms we’re in a whole new market environment. One marked by increased volatility, increased uncertainty, and increasing turmoil — on both the way down AND the way up. It smacks very much of other down cycles in credit, where the “crisis/policy response/crisis” process would play out over and over again.
My favorite coping strategies? Keep a higher percentage of your portfolio in cash and cash-like investments. Own some crisis insurance investments like gold. Use sensible hedges.
Also stick with stocks that offer generous yields — but make sure the underlying companies can actually afford to pay those yields. Focus on sectors with less economic sensitivity. Buy non-stock investments in fixed-income and currency markets to diversify your portfolio.
It’s a crazy environment out there. But if you stick to that game plan, I think you’ll come out ahead in this uncertain time.
Any thoughts on that set of recommendations? Do they align with what you’re doing in your portfolio? Or do you have other strategies you’re using? Any particular stocks, ETFs, or funds that you like here in an era of heightened volatility? Let me know.
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If the last 36 hours have taught us anything, as I noted, it’s that volatility is here to stay. The European Central Bank’s actions helped launch a big rally, which was followed by a big selloff, which was then followed by a big rally — leaving investors with their heads spinning. So what do you think of the market action?
Reader Larry said: “It certainly appears that investors have finally lost confidence in the central banks. I am surprised that the market rallied after the selloff today. It looks as if we will see more selling in the next few weeks.”
Reader Denis said: “It seems that no one knows what is going on. My advice is stay liquid, reduce debt (if you have any), and do not take on any more debt if you can avoid it.”
Reader Paula added: “It’s unfortunate the policy makers still have not learned that they can’t control the markets. They keep throwing good money after bad, thinking they can shore up a ship that is sinking quickly.”
To that line of thinking, Reader Henry A. said: “The Keynesian paradigm is a total and obvious failure. It doesn’t work and never has. But we are bound to suffer from it until some other theory comes along and displaces it. The free market (i.e. capitalism) is on life support because Keynes and Harvard economists apparently have a vested interest in preserving and defending their failed scholarship.”
On the other hand, Reader Samm identified at least some parties who stand to “win” in light of the ECB’s latest action: “The ECB will now loan money for up to four years interest free. Corporations will borrow gobs of money and buy back their own shares, which will increase the value. Then officers of the companies will end up making millions on their options. What a great deal all around for the rich guys.”
Thanks for weighing in. It’s obvious to me and many others that the game of propping up asset prices to create a “trickle down”-style impact in the economy isn’t working. It helps promote artificial asset price levels, without the underlying cash flows or economic fundamentals to support them. That’s recipe for burst bubbles down the road.
Moreover, lending essentially free or even better-than-free money to banks in order to spur lending hasn’t worked. Many banks have all the money they need … but they aren’t lending anyway. That’s because end-user demand isn’t there and because the economic backdrop and credit-cycle phase aren’t conducive to a new burst of growth.
Long story short, anything can happen in the very short term. It obviously has in the last day and a half! But this latest ECB bazooka doesn’t seem likely to work any better than the last five or six Mario Draghi has conjured up.
Agree? Disagree? Any other thoughts on the wild market action? Let me hear them in the comment section below.
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The remaining Republican candidates for president gathered in South Florida for a key debate last night. Donald Trump, Ted Cruz, Marco Rubio, and John Kasich were much more civil and less confrontational this time.
Florida and Ohio have primaries scheduled for Tuesday, March 15. Rubio and Kasich could be forced to exit the race if they don’t manage to win those primaries, given Florida and Ohio are their respective home states.
The embattled Internet search firm Yahoo (YHOO) isn’t giving up easily in its ongoing fight with activist investors. The company named two more board members, hoping to fend off a push from Starboard Value LP to nominate its own slate of directors and force a company sale.
Emerging markets have been on one heck of a roller coaster in the past year. Right now, they’re enjoying a rally – one led by countries like Russia and Brazil. Russia’s stock market and ruble currency is bouncing along with oil prices, while Brazil’s stock market and real currency are rallying amid hopes the country will finally put its massive corruption scandal behind it.
Will it last? Or will it fail like all the previous oversold bounces? Hit up the comment section to add your thoughts. I’d also like to hear your thoughts on the latest Republican debate, and the increasing willingness of companies like Yahoo to fight back against activist hedge funds.
Until next time,
Mike Larson
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Recommended Articles by 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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What would u think if your central bank drug dealer said here’s a nice big hit money to keep u high for awhile but it is the las u are going to get. If u believe him u get this last party but u know withdrawal is coming.
Hi Mike
One of the reasons you see confidence building then collapsing can be seen in the current campaign shenanigans. The struggle is watching the building of hope over fear by so many ordinary fellow countrymen. Are they right? Who knows, I just know that people like Ben Carson are rare. I didn’t expect him to run and certainly didn’t expect him to win. Why, because he is an outsider trying to help change this country from the GOP v’s Democrats. The people are fed up with a failed system and want change. People are fed up with elitist, top rich 3% politicians wanting to dominate and control their lives, promise them stuff and then leave them disappointed yet again. We are all better than this and can unite for change away from politics to get our country moving again. People want genuine jobs and real hope.
The answer to the question of market volatility is to ask, where’s the money coming from? Not only from where, but from whom and why. Then we will have the answer. We know what panic and fear does, but what about confidence and enthusiasm?
Being in my 80+ years old and had been in the business world for about half those years, I have watched our current failed system grow since the end of World War 11. It doesn’t matter whether it’s a Republican or Democrat in the White House, it’s always the do gooder who enters the political arena that eventually falls in line with the greedy majority. I believe that there are at least 70 or 80 percent of congressional electives that have lined there pockets enough to become quite wealthy. This system is not about to change as long as greed exists.
As for our current promises of Change being voiced by today’s Presidential candidates, you have to listen very carefully and try to understand that All there promises are a bunch of fairy tales on there wish lists. We all want change in our current state Government mismanagement , where individuals can earn a respectful wage to take care of there family, but that as well is in everyone’s wish list.
Wish there were a simple answer for everyone ??
HOPE is in everyone’s future.
We all want riches and power of some sort, so we elect people who promise us riches and power. Then those we elect use their positions to get riches and power of some degree for themselves, by taking from one group to reward those who elected them just enough to get elected again, maybe to a higher office – with even greater rewards. Eventually someone collects a cabal and takes over as king, emperor or dictator. Until the Revolution, anyway.
We are about due for the king, emperor, dictator stage. Empress Hilary? Emperor Donald? Dictator Bernie?
Pardon me, Queen Hilary?
Harrold,
There is a simple answer, balance the budget, manage the government to allow competition from smaller firms, reduce regulation to allow new competitors and work buy and sell locally where we can control the shenanigans of politicians wanting to promise everyone everything.
Let good old capitalism provide stability and don’t interfere at all, anywhere, except to remove competition from cheating countries.
It seems like even when a company just about beats analyst forecasts and may even miss on some parameters, investors buy in. Everyone is looking for good news to jump in. As far as shipping companies are concerned, the lifting of US oil exports by the feds may be a boon to tanker companies, however, it may take some time for it to get organized and moving since energy related companies are hurting and just trying to keep afloat at this time.
This market is overbought.
So, Howard……I’m new to the game…..both investing and politics….in plain English what’s
the script?
It is not written Daryl, it is being written.
Your observations are sensible and common sense. I agree with you. The problem I have is that we have been hearing similar comments for twenty years from people that know a lot more about it than we do. Fiat money printing, our jobs going overseas, horrendous trade deficits, and the like, but the bad things these are supposed to cause haven’t materialized. Instead of the dollar crashing it rallies big time. By every standard measurement the economy is improving. Same goes for Europe. They are supposed to be bankrupt but continue to chug along like they always have. I guess my real question is WHEN?
There are two Howard’s and this site is compromised
the world is full of howards.
I’ve been saying for years that this country is becoming ripe for revolution; I mean a real shooting type revolution. Can you spell French Revolution? Can you spell Russian Revolution? America is getting in similar straits. The “have nots” are getting fed up with the status quo and someday (maybe not in my life time) the “have nots” will rise up and take what the “haves” have. I believe this is why Trumps message resounds with so many people. They are fed up and are willing to chuck the whole system overboard and start over. The founding fathers had a great idea initially, but the plan has gone awry. Give me someone like George Washington or John Adams. They were the only presidents who put country first and party second.
If you want a democracy-type revolution vote for Sanders. If you want fascism, and just plain loony bin 7th grader antics, then Trump delivers.
Ed’s on to something. If Trump wins the Left revolts. If Comrade Sanders wins the Right revolts. It’s a no win situation. Jim
I suspect that volatility is driven by speed – speed of change, speed of information, speed of trading. The faster the market operates, the larger the swings can become before the reaction. In a slower-paced environment, common sense has time to calm those knee-jerk responses.
Just wait until the central banks start releasing millisecond policy changes.
The time is near to close the Federal Reserve System! “We the people” are FED-UP for this cartel ruining our life’s, liberty and pursuit of happiness! The writing is on the wall if we carefully observe WHY Trump and Sanders (and their respective messages) resonate so well with so many millions of ordinary people! A NEW era has begun! Soon the momentum will sweep away the old ways of the Establishment. This coming Tuesday will measure speed and momentum. The political candlesticks will show new support and resistance levels. Political volatility will soon change to a new kind of stability,- one of REVOLUTION against the 1% elite way of life!! In history, political culture has always determined economic structure! Why will it be different this time??
Sign me up!
Barry ,your education level stopped at the elementary school!
Same with you Phil, you probably miss a lot of Western society education!
Haven’t read commentary for a while. I suspect it will be a much longer time now.
Just about every government number is bogus. Then there is the media spin. Throw in a political shift and you get investors vertigo. Don’t buy any stock that at least two M n M’s don’t agree on. Trends will be short lived, so watch you’re moving day average before buying in. Say a quick prayer, flip a coin, then drop back ten yards and punt. That should put you about break even.
A coronal mass ejection will eventually hit the reset button. Every few years a CME comes close and when we get the inevitable repeat of September 1, 1859 it’s game over. No more electronics or electrical grid. Back to unimaginable chaos with no markets, no electronic records, no internet, etc., etc., and no recovery plan. We’re already past the point of no return. When this happens, survival will be first on the to-do list. (written in pencil)
Derry, more likely you’ll suffer a coronary mass ejection than a coronal mass ejection! Beware those sun flares, though.
The best way to revolt is to vote out all the career politicians and start new, eliminating the “establishment”. That appears to be finally turning toward this means in the political arena with Trump and Sanders getting so much support.
If that does not work, and the establishment ceases power to prevent their losing control; we the people have to hit them by cutting their insatiable appetite for our tax money. A “we the people strike” would need organization and execution to threat shutting down the economy, cutting their precious federal tax stream, bankrupting their ability to pay for the interest on the govt debt. I know this theory would have slim chance of working. It is only a thought and theory. What other ways might we hit them where it counts-in their pocketbooks!
It’s not as difficult as you may think. A Rand study I read said that the country could be peacefully and effectively shut down by a small number of people. The truck drivers. It’s worked twice in France. Jim
Jim, good to see you holding up French behavior as a model. I would have guessed you have little respect for anything they do.
I admire the French. They have their own way of doing things. I wasn’t advocating. . The infamous Rand Corporation was.
When I look at your three comments tonight I see a pattern you have consistently displayed. Rather than engage in a free exchange of opinions and say something intelligent of your own, you stoop to the snide and personal. You sir, are a first class jerk. Jim
Now, now Jim. You’re descending to Trump-like behavior–name calling, rather than refuting positions. Maybe you’d like to sucker punch me when I’m not looking.
I think the volatility is in large part due to Hedge and other large funds computer trading. They are using formulas which are base on momentum and other non fundamentals. Most small investors such as myself cannot compete.
Like the market, some post are volatile.
Big problem in our financial house of cards. There are hoards of money out there that is not moving, either because banks are not loaning it or companies are hoarding it in cash. As companies buy back their stocks, corporate officers exercise their options and collect good dividends before selling those stocks back to the company at the inflated price made artificially highby the buy backs. We’re flirting with deflation because the velocity of money is low. However, that stationary money will begin to move and that’s when hyperinflation will start to decimate the dollar. We’ll probably see a 30 percent drop immediately and end up by year’ send with a dollar worth 10 cents/percent of what is was a year earlier. The rest of the world won’t care for they will finally be able to deal with us on a more equal basis. The SDR will prevail, as we follow in the footsteps of our parent, Great Britain whose English pound maintained its sovereignty much longer than our dollar did. Well, maybe we won’t mind not being number one anymore. We can then pay a little more attention to us.
Another Will on here?
I am a contra-trend investor. I don’t mean to be, but that’s the way it seems to work. Just as I am convinced of the general direction of the market, I invest and the stock or the entire market heads in the other direction. So, with that, the market is now headed up as I just bought some put options.
By the way, the current jump in the averages, has the S&P 500 only about 20 points or so from the arch I spoke of last weekend, and the arch is now curving down about 45
degrees and steepening. If it holds up, there should either be a penetration within the next week or so, or a possibly sharp drop. That could be followed by a recovery and then a penetration to a higher level, or there could be a 1929 type collapse. Beyond the current angle of decline, we could see such collapse, unless a significant penetration occurs. The arch began in August, 2014, by the way, and has seen about 10 touches + or – less than 10 points since then. That would seem to have some significance – take it for what it is worth. The next drop could possibly be greater than those of last August or January.
Incidentally, a significant penetration could mark the end of the correction. A big drop could, of course mean collapse.
They say your school days are the best days of your life talking about western society’s education.
If put on a heart monitor, the markets would look like a heart attack in progress. All we need to worry about is when it flat lines. The Fed has the paddles but no electricity.
Central banks have bet wrong consistently, the Yuan hat caused the us stock market to go down then has since gone down since August more. There is absolutely no reason why the US stock market should go up and yet it does. The shorts helped. Volatility in the market place has only meant when some rumor that has little or no chance of happening like gas going up because of an agreement no one honors, or the cooper demand or iron ore going up because pig farmers in china that own tons of it are waiting for the right time to sell when they can move the money out of china. All the above are manipulated rumors with no news to verify. The reason could be nothing but a ploy by the smart money to get out of each market so they can to cut the loss of the other markets by buying some and selling a lot. If we knew how much they owned and how quickly they wish sell out we would know when to buy and sell, they know but us knowing would mess up their algorithm. I think is it based on options of buy vs sell orders. If we bought one cheap call order wait 3 weeks and sell and then buy two puts; I believe we could be rich because the smart money is in control and I cannot see any other way we can beat them at this time based on the algorithm I would make. I think that would cause a correction and make everyone honest the next time.