A few days of triple-digit Dow gains with seemingly no fundamental catalyst?
A lack of confirmation from other capital markets?
Yep, folks … it must be a Santa Claus rally! The action we’ve seen feels good considering the recent carnage in a number of sectors and the broad market. It very well could continue through Christmas or even New Year’s Eve.
But I wouldn’t get too carried away. Instead, I’d use the low-volume rally to reposition out of some loser investments, and get prepared for what may be a challenging 2016 ahead.
I’ve shared some of my reasons in recent weeks. But one potential threat the Wall Street Journal just wrote about bears particular watching. I’m talking about one of the biggest “hidden” groups of sellers out there — the world’s Sovereign Wealth Funds.
|When we think of Saudi investors, we think of wealth. But even that country is feeling the pinch.|
Consider these sobering facts from the Journal:
* There are a whopping 79 sovereign investment funds active in the world’s markets now — up 79% since the last major market peak in 2007.
* Those funds control around $7.2 trillion in assets, twice their size back then. They collectively manage more money than every single hedge fund and private equity fund in the world.
* Yet many of these funds operate behind the scenes, providing few details on what they own or how they invest. Some don’t disclose their size. Others are being investigated for shady behavior, self-dealing, and non-economic investment practices.
Perhaps most troubling of all: Almost 60% of the sovereign funds out there are leveraged to energy prices. That’s because they’re backed by countries that are dependent on oil and commodity exports.
|“Now that energy prices are plunging, the governments in those countries are drowning in red ink.”|
Now that energy prices are plunging, the governments in those countries are drowning in red ink. So rather than putting money into their funds, they’re taking money out. And rather than those funds having more and more capital to invest in the world’s markets, they’re being forced to sell or redeem investments — putting downward pressure on asset prices.
Morgan Stanley estimates that sovereign funds withdrew $100 billion from various outside asset managers in the six-month period that ended Sept. 30. Saudi Arabia’s reserve hoard alone has shrunk by 13%, or around $100 billion, in the past year. Chinese reserves are down almost $600 billion from their peak, another factor likely to put downward pressure on asset markets.
So again, enjoy the holiday rally. And please allow me to take a moment to wish you and your family a pleasant holiday season, as I won’t be filing my regular Afternoon Editions on Thursday or Friday.
But keep in mind that “hidden” sellers lurk out there, and they’ll continue to be a headwind as long as commodity prices remain depressed.
What do you think of foreign asset liquidation? Is it a significant threat, or one that can be offset by other factors? Will China, Saudi Arabia, and other major global players continue to sell U.S. stocks and bonds, and if so, what does that mean to your investing strategy? Let me know your views when you have a minute.
What does the future have in store for Walt Disney, and what do you think about the recent negativity on its shares? Several of you took the time to weigh in on that yesterday online.
Reader KD said: “ESPN woes are NOT new news. I do find it very interesting that Mr. Greenfield (of BTIG) conveniently dropped his “Sell” rating the Friday of the Star Wars premiere. I wonder how many of his ‘friends’ were short DIS that day, knowing the movie was going to blow out the box office and the ‘longs’ were counting on it. Wall Street at its worst.”
Reader Valerie also weighed in with a negative view on the downgrade, saying: “I own Disney and find Mr. Greenfield’s comments about ESPN very suspicious. I heard his interview on CNBC. When he was pinned down, he said that he was lowering Disney’s stock because in 2017 and 2018 they might have too many cancellations for ESPN. He gave no credit to Star Wars or the Shanghai theme park. I think he should have.”
Reader Manuel came to Disney’s defense as well, saying: “I own shares and regardless of the ‘Sell’ rating, I would not sell any of them. Each one gives out dividends better than any bank interest and Disney will last forever. The facts are that Disney went way up after buying Marvel, and I bet you that even if people might not believe it, Disney will go up once more.
“I’ll tell you what I would do. After it goes down to its new estimated price of $90, I’d buy again, because Disney and Apple (AAPL) look very similar in terms of what people thought at first about the newer iPhone. People just don’t know it yet. May the Force be with you.”
On the other hand, Reader Michael said: “As the Baby Boomers get older, they are going to look for places to cut costs. They will remember that when they were kids, their parents used an antenna to pick up local TV stations. They are going to find out, with a little research on Google and Youtube, that they can buy a high definition antenna and get a bundle of stations they only dreamed of as a kid.
“Include an Internet connection and Wifi and they won’t even miss cable and satellite networks. My advice: Look for TV antenna manufacturing companies and dump your cable and dish network stocks.”
Lastly, Reader Mike suggested one way Disney may try to do an end-around to keep subscribers paying for ESPN content. His take: “I think ESPN will follow Starz and make a deal with Amazon (AMZN) Prime and probably Netflix (NFLX) to be an additional streaming source at a monthly charge. I have no idea of the gain or loss of viewers, but Disney will not go to the bitter end with the cable companies.”
Thanks for sharing your views on the iconic media company, and the outlook for its shares. We’ll have to see if it can re-gain its market leader status as the calendar rolls over, or if the recent struggles are just a harbinger of more problems to come. If you haven’t offered your opinion on this topic yet, the Money and Markets website is here for you as a resource. Be sure to use it.
We got some November economic data today that’s worth chronicling. Durable goods orders overall were unchanged, but down 0.4% in the crucial “non-defense orders ex-aircraft” category that’s seen as a proxy for core business spending. Meanwhile, personal income and spending both rose 0.3%. That was roughly in line with estimates.
The U.S. Postal Service is battling against UPS (UPS) and FedEx (FDX) for holiday shipping business … and it appears to be winning. The Wall Street Journal reported today that volume has jumped 15% from a year earlier, and that its market share of seasonal business is up to 40% from 35% in 2014.
Apparently, the nation’s millionaires don’t think much about the stock market’s prospects. CNBC recently conducted its latest twice-yearly survey of wealthy investors and only 46% think the S&P 500 will be able to rise at least 5% next year. One-quarter of those surveyed think stocks won’t go anywhere at all. Many more now also favor the non-economically sensitive health care sector over previously popular financial stocks.
If you’re a history buff, then this fascinating (and chilling) story in today’s New York Times will interest you. It describes a newly declassified target list from the late 1950s showing the hundreds of Russian, Chinese, and Eastern European facilities and cities we would have nuked in the event the Cold War went hot.
So are millionaires on to something with their negative view on stocks? What do you think of the USPS’ holiday resurgence? Any other stories that caught your eye, and that you wanted to comment about? Then use the section below to add your views.
Until next time,
P.S. In 2016, members of Larry Edelson’s Supercycle Trader are going after profits of up to 1,200% and more as Europe and Japan crash and burn — and a massive wave of flight capital drives select US investments, gold and silver through the roof.
Click this link to find out more now!