One side argues we’re heading into a recession. The other argues the economy is heating back up.
One side says gold prices are about to explode above key resistance. The other side argues we’re due for a severe correction (at least).
One camp says interest rates are about to plumb unimaginable depths, while the other believes they’ll soar from artificially depressed levels.
As for stocks? Some argue they’re the buy of a lifetime now that the averages have broken out. Others point to how they’re massively overvalued, and at risk of a serious plunge.
I’ll be honest. I can’t remember seeing such a wild split in views on so many different markets. Part of the problem seems to be that policymakers themselves can’t seem to agree on what the heck they should do.
San Francisco Federal Reserve President John Williams released a paper yesterday that indirectly made the case for “lower for longer” interest rates. It also made the case that “conventional monetary policy has less room to stimulate the economy during an economic downturn.”
That was very similar to comments from other Fed officials, who have increasingly been embracing the idea of secular stagnation for the U.S. economy. So the dollar tanked, gold soared, and interest rates fell overnight.
|Policymakers themselves can’t seem to agree on what the heck they should do.|
But then a bit later this morning, New York Fed President Bill Dudley sounded a hawkish note in comments on the Fox Business Network. He said the Fed could hike rates as soon as the September 20-21 meeting, and that the markets were too “complacent” about potential moves. That caused the dollar to rally from its lows, gold to reverse early gains, and interest rates to rise.
What seems abundantly clear to me is that we’re at a crossroads. The biggest “Everything Bubble” in history, coupled with key turns in the credit and economic cycle, suggest that caution is still the best investment stance. But many mainstream analysts and Wall Street types want to embrace a new narrative, one of massive fiscal stimulus, a resurgent economy, and a wholesale rotation into much-riskier stocks.
|“Caution is still the best investment stance.”|
That excludes some of the world’s wealthiest investors and more-maverick fund managers, of course. In fact, billionaire investor George Soros doubled his sizable option-based bet against the S&P 500 in the second quarter.
You should know which way I believe this whole mess gets sorted out, based on everything I’ve written here in Money and Markets … shared with subscribers of my Safe Money Report … or told investors face-to-face at recent conference appearances.
I also just conducted a timely, hard-hitting online briefing called: “Cracking the ‘T’ Code: The little-known chart pattern that could make you 5 times richer in 12 months or less.” I hope you took some time out to see how you can use these markets to go for gains of 234% … 270% … and up to 412% in as little as 14 days. I also provided my outlook and forecasts for the rest of 2016 and 2017 – and explained how you can keep your wealth intact AND growing, in today’s crazy and chaotic world.
If you didn’t get a chance to join me, the briefing will be available for a limited time online. Just clink on this link.
Meanwhile, I’d love to hear your thoughts on the recent volatility across several asset classes. Where do you think bonds, stocks, currencies, and gold are headed? Why? The comment section is your place to sound off.
Until next time,
As I alluded to earlier, if you’ve been reading or watching my commentary, or if you’ve had the chance to see me in person at various conferences over the past few months, you know I’ve been relatively cautious on the markets. But in yesterday’s column, I did mention a few select areas where you could potentially rack up gains even in a higher-risk environment. So what did you think about them?
Reader Anthony G. responded by highlighting one of the market’s biggest obstacles: “The masses are suffering from income famine. This central bank con game bubble will soon fade.”
Reader Justin also sounded a skeptical note: “It’s too soon to say conclusively, but each day we’re getting closer to an August Top/October Crash scenario. Now is not the time to establish new long positions! Now is the time to take profits!
“In the months ahead, either sit on your thumbs, or if you’re agile and can time the market, there are any number of 3X ETFs available. And, gold has started to act as a flight-to-safety vehicle lately. So after the major indexes make a top, if gold makes a decent correction in the coming weeks, there could be an opportunity to go long in the yellow metal.”
Reader Root took a more philosophical approach, saying: “Is a ‘good’ market an up market? Is a ‘bad’ market a down market? Nature works best when that pendulum brings activities back to balance. Just because we tend to think things are best if increasing in price, in size, in energy, etc. … really? I’m glad my children didn’t keep on growing larger after they hit 21!”
Finally, Reader Geoff B. highlighted many of the problems Japan is facing – and why even more aggressive stimulus is likely to fail. His take:
“In Japan – with an aging population, shrinking labor pool, xenophobic approach to immigration, lack of innovation, lack of pricing power, and no growth in productivity – how can you ever attain economic growth? These are fundamental structural problems that government spending cannot overcome.”
Hmm, some of those problems in Japan sound awfully similar to those we face in the U.S. Maybe that’s why the Federal Reserve keeps backing off plans to raise interest rates, and why we can’t seem to get real liftoff in the U.S. economy.
As for the broader markets, it’s all about growth here. If the bounce in the economy we saw in June and July peters out, I don’t see how stocks can keep soaring – particularly stocks that need strong GDP growth to generate healthy earnings growth.
That’s my view anyway. If you haven’t shared yours yet, take some time to do so in the comment section below.
The U.S. industrial gas supply company Praxair (PX) is considering buying German rival Linde (LNEGY). Pricing couldn’t be learned, and there’s no guarantee a transaction will result from the talks. But the combined company could have a market capitalization of more than $60 billion.
Germany’s Volkswagen AG may face criminal charges and/or a large settlement with the U.S. government. The Justice Department reportedly found evidence of criminal behavior related to emissions-test rigging, meaning criminal fines above and beyond existing civil penalties are likely forthcoming.
Don’t look now, but rates are rising – if you know where to look. Specifically, rates on short-term corporate loans are climbing. So is the so-called LIBOR-OIS spread, a measure of the difference between short-term corporate rates and short-term, risk-free rates.
When these rates and spreads began increasing back in 2006-2008, it was an early warning sign of broader credit stress. Stocks later collapsed. Most analysts say today’s rise stems from a more benign cause: New regulations. They’re driving money market funds that previously would buy short-term corporate paper into government securities instead.
Keep an eye on this trend, though. If it continues well into the fall, it may be a sign of something more sinister lurking.
So what do you think? Are indicators like the LIBOR-OIS spread an early warning sign (again)? Or just something to talk about in a slow August market? Any thoughts on the latest, large trans-Atlantic merger? Or Volkswagen’s ongoing emissions problems? Hit up the comment section and share your views when you have a minute.
Until next time,