|Dow||-8.70 to 17,069.58|
|S&P 500||-3.07 to 1,997.65|
|Nasdaq||-10.28 to 4,562.29|
|10-YR Yield||+0.038 to 2.448%|
|Gold||-$7.30 to $1,263|
|Crude Oil||-$0.93 to $94.61|
Remember my advice?
What I said about getting the heck out of the euro — or better yet, profiting from its decline?
And focusing on the much-stronger, U.S. domestic economy rather than investing in Europe, Japan or other laggards?
Boy, do I hope you heeded it! Not only would you have been making money for months on this trend, you really hit paydirt today. That’s because the European Central Bank went “All In” on easy money and currency debasement.
Specifically, at their policy meeting today, officials led by Chairman Mario Draghi …
* Cut the benchmark refinancing rate (similar to our benchmark federal funds rate) to 0.05 percent from 0.15 percent
* Lowered the euro area’s deposit rate to negative 0.2 percent from negative 0.1 percent. (For more on what that means, check out this June Money and Markets column.)
* Then at the post-statement press conference, Draghi announced plans to buy everything from asset-backed securities (ABS), which are securities comprised of bundles of loans, and covered bonds, which are a type of bond that’s popular in Europe used to finance things like mortgages.
“The news that proves the ECB is incredibly worried about lackluster European economic growth.”
The idea is to avoid QE that just focuses on government bonds. Instead, “Euro-QE” is being aimed at bonds that finance actual real-world lending — with a goal of having a much bigger impact on economic growth, jobs, and inflation.
This is HUGE news, in particular for the euro. It started plunging as soon as the statement came out, breaching support at 1.31 against the dollar. Then it plunged even more when Draghi began speaking, breaching the round number of 1.30.
At virtually the same time all that news was hitting — news that proves the ECB is incredibly worried about lackluster European economic growth and too-low inflation — we got more data on the U.S. jobs market. Specifically, ADP reported that the U.S. economy created 204,000 jobs in August.
|ECB action and Mario Draghi’s comments helped send the euro tumbling today.|
That was down a bit from 212,000 in July and a few thousand shy of forecasts. But June’s reading was revised up to 297,000 — the highest reading in several years. And this extends the streak of 200,000+ results to five months, something that hasn’t happened in years either.
Small, medium, and large businesses all added tens of thousands of jobs. Plus, job growth was spread across every industry from construction (+15,000) to manufacturing (+23,000) to professional and business services (+51,000).
Meanwhile, the ISM Services index rose to 59.6 in August. That was up from 58.7 in July and well above forecasts for a reading of 57.8. It was also the highest reading in nine years!
Look, I’m not going to sit here and tell you that everything is rosy and wonderful here in our economy. We still need to see better wage growth, less regulation, a more reasonable tax structure and more.
But it’s 100 percent clear to me that we’re in better shape than other countries and regions, in part because of the boom in domestic energy and other industries.
It’s also 100 percent clear to me that most bonds are value-less pieces of garbage paper that have tons of risk and offer middling returns.
So that is why I’ve been urging you to invest here, not there. That’s why I’ve been recommending everything from domestic energy stocks and MLPs to health care and aerospace names … and that’s why my Safe Money subscribers are now raking in very nice gains as a result!
Just one example: I recommended a large position that’s designed to make money from a falling euro in my April Safe Money issue. Based on the action since then, I estimate they’ve already racked up open gains of almost 11 percent. And if I’m right about where the euro is ultimately headed, they could double those gains in the coming weeks and months!
And while you’re thinking about that, why not let me know at the Money and Markets website what you think about the euro. Is it doomed to fall even further? Is the latest central bank move a sign of desperation? Or might it actually work because it’s aimed at the lending market? Have you been following my advice and investing in domestic stocks as a result — and if so, do you mind sharing some names with your fellow investors?
|OUR READERS SPEAK|
Looks like the piece on whether we’d see S&P 3,000 or S&P 1,000 first drew a lot of comments out of the woodwork. Some of you chose to focus on a couple of calls from years ago that didn’t work out, and that’s fine. We all make mistakes.
But I’m glad that many of you are also enjoying the success of more recent predictions, including the euro collapse that’s unfolding before your eyes. And I’m glad that you’ve recognized that as the times have changed, so too must everyone’s investment approach!
For instance, Reader Dave T. said: “I’ve read your Safe Money comments for four years now. You have gone from bear to neutral to upbeat … yet all I see is a sluggish economy and a runaway stock market.
“I would say most of your subscribers, myself included, have kept the ‘safe’ investment mentality and have missed most of this run-up. Bottom line is, my ‘gut feel’ is just as good as all the so-called economic/financial pundits’ combined assessments.”
Dave, I’m glad you noticed that I have adapted along with the markets. If you don’t absorb and react to new developments in the markets, you’ll be at a disadvantage!
But never forget that the kinds of investments I pick in Safe Money will always be made with safety in mind! It’s in my DNA, and Martin’s as well. That said, investing “safely” doesn’t mean never investing in stocks. As I have mentioned in many instances, many supposedly “safer” bonds are actually riskier today than supposedly “riskier” stocks!
My approach is to avoid lousy-yielding bonds with tons of price risk. And, at the same time, focus on stocks that get high Weiss Ratings. Zero in on those active in industries that are in their own private bull markets, that don’t need rock-bottom rates to prosper, and that are kicking tail in spite of Washington policies, not because of them.
Also, you have to keep generous cushions of cash on hand to protect against downside, and take advantage of opportunities as they come up. Do that, and I think you’ll prosper in this environment!
Speaking of which, Reader H. Craig B. said: “Everyone is talking about a much awaited ‘correction’ … The talk is deafening at times. The last correction this past February was about -6 percent and lasted a whole of two weeks. It came and went before you could put in a sell order.
“So, the real correction (10 percent-15 percent) is probably a long ways off, maybe 3-5 years out. No ‘crash’ until its time either. You always hear all the doubters in-between quarterly earnings seasons when nothing is happening in the markets. This time is no different.”
Craig, those are solid insights for the current environment. You’re right that capturing every zig and zag in the markets is tough stuff. So that’s why I’ve stayed laser-focused on the approach I spelled out for Dave earlier.
But I would argue that you can tell when a major change in market fortunes is brewing — if you pay close enough attention. Martin saw many of those signs in the late 1990s, which helped him predict the dot-bomb collapse. And I saw many of those warning signs in real estate in the mid-2000s, which helped me predict the housing collapse.
Finally, on the economy, many of you commented on things that could help — or hurt — growth.
Reader Glenn said: “It’s like everybody has stopped talking about the impact of Obamacare on small businesses. The President put that off a year but that time is fast approaching and there are lots of small businesses that offer jobs, not benefits.
“Forcing them to pay for health insurance in a business that will not support that, will either force them to shut down or sell to somebody bigger. I think there is a lot of disruption right around the corner and that impact will feed multiple other problems and take many months if not years to sort out.”
Reader David E. said: “Your comments about minimum wage are absolutely WRONG. Raising the minimum wage will only increase the price of everything, raise all salary rates and result in the minimum wage still not being high enough. They are getting minimum wage because anybody can do those jobs. They are beginning jobs. When they learn skills, they will get more money. If not willing to learn skills, then no raise.”
And finally, Reader Alan L. cut right to the chase. He said: “Get the fool Government out of the picture. Too many cooks in the kitchen spoils the meal!”
So bottom line, many of you believe (as I do) that Washington meddling in the economy isn’t really helping. If anything, it’s making things worse. But what I do find encouraging is that businesses are finding ways to get things done regardless. The example of domestic energy firms just bypassing the whole Keystone pipeline bottleneck is just one example. Find those companies, buy ’em, and I think you’ll do just fine!
Don’t forget to add any other thoughts you might have at the website here.
|OTHER DEVELOPMENTS OF THE DAY|
NATO officials are gathering in Wales as I write to discuss the conflict between Russia and Ukraine. Russian President Vladimir Putin was not pleased that President Obama and the leaders of the U.K., France, Germany, and Italy all met with Ukraine’s President Petro Poroshenko there, despite the fact Ukraine is clearly not going to join the 28-nation NATO alliance anytime soon. We’ll just have to wait and see if the summit derails the reported cease-fire talks between Russia and Ukraine.
In other economic news, worker productivity slowed to 2.3 percent in the second quarter from 2.5 percent in the prior quarter. Jobless claims remained near recent multi-year lows, coming in at 302,000. This points to labor market tightening, and further confirms my thesis the Federal Reserve is going to have to raise rates sooner than Wall Street anticipates.
U.S. bank regulators are proposing rules that would tighten margin requirements for trading opaque, over-the-counter derivatives. That’s supposed to help increase confidence in the ability of banks to handle financial stress.
But U.S. banks still hold some $280 TRILLION of these esoteric investments and speculative positions on their books. And that means yet another financial crisis could easily loom down the road.
The Justice Department is planning to investigate the Ferguson, Missouri police department in the wake of the August riots there. The civil rights investigation follows the shooting of 18-year-old Michael Brown, an African-American, by white police officer Darren Wilson. Justice is looking for a pattern of discrimination in policies and procedures.
Reminder: You can let me know what you think by putting your comments here.
Until next time,
P.S. This week Martin hosted two urgent video briefings! If you missed out on these please click here now to watch!