Why have I been sounding so cautious lately? Why have I been so adamant about taking profits, cutting losers and raising cash for the past few months? Simple.
Because when it comes to the markets, I choose to live life NOT on the edge.
Look, there’s nothing wrong with bungee jumping, sky diving or even dog sledding to the North Pole if that’s your thing. Heck, the way people drive around here, I sometimes feel like I’m taking my life into my own hands when I hop on my road bike and do my daily 10 miles around town after work.
But when it comes to my work here at Money and Markets, and especially my Safe Money Report newsletter, I have no interest whatsoever in taking excessive risks. This is your hard-earned capital I’m charged with protecting and growing. I take that responsibility incredibly seriously, and have for every one of the 14 years I’ve been at this.
|Dog sledding to the North Pole is one thing — but investing in the stock market is something else.|
That brings me to the current market environment. Right now, I see and hear a lot of hope out there …
Hope that the Federal Reserve won’t raise rates in September, or that it can save us from every threat in the world regardless.
Hope that the low volatility regime will continue here in the U.S., despite increasing turmoil overseas.
Hope that the spreading weakness in virtually every corner of the market … behind the S&P 500 Index … won’t result in a significant pullback.
But in reality-land where I live, I continue to see signs of tensions and weakness everywhere. Just today, in fact, the Philadelphia Semiconductor Index (SOX) broke down to a new low. It’s trading at its worst level since last October, as you can see here …
|Philadelphia Semiconductor Index|
This isn’t just business as usual anymore. Instead, this technical action proves this is no longer just some energy/commodities issue, like the Wall Street apologists claim. It’s one that’s sweeping up more and more stocks and sectors.
And I’m not even referring to the ongoing emerging market or bond market carnage. Just in the last 24 hours, Vietnam devalued its currency for the third time in a week while Turkey’s lira fell to a record low. Meanwhile, the SPDR Barclays High Yield Bond ETF (JNK) I flagged recently, hit its lowest level in almost four years.
So I’ve said it before and I’ll say it again: This is not a market to be reckless. This is not one where you want to (metaphorically speaking) sky dive without a parachute. It’s one where moving your portfolio further away from the risk edge makes all the sense in the world. I recommend you do it.
And if you want to get specific, actionable advice – including timely “buy” and “sell” alerts – now is definitely a good time to check out my Safe Money service. I’ve been more active in it lately given these major developments, and am considering even more urgent moves I’d hate for you to miss out on.
Now let me hear how you’re approaching this market. Are we staring at a potentially large spill? Are you selling in anticipation of it? Or buying because you think we’ve already hit the lows? Are you worried about what’s happening overseas, or the deterioration in new sectors like semis? Let me know at the Money and Markets website.
Which company is offering a better read on the economy: Home Depot (HD) or Wal-Mart Stores (WMT). You definitely had some thoughts on that question, many of which you shared at the website.
Reader Doug D. had this to say about how the state of the economy is impacting retail sales: “The economic divide in this country is taking its toll without question and the stock market should take note accordingly. I refer to the concept that I call frozen capital.
“When a rich person makes an extra dollar, it typically becomes part of a bigger pile of frozen dollars which does little to improve the economy. Wage growth for the common man is abysmal, especially when you take into account how the rising cost of health insurance saps whatever wage growth there is. Economic growth has become an illusion and the hope of the common man is getting crushed. When you crush the hope of the common man, everyone loses. It is a LOSE/LOSE proposition over time.”
Reader Frank added: “I agree there are two different customers/buyers in your example of Wal-Mart and Home Depot . I think it would be enlightening to see how these different customers pay at the cash register.
“I have no proof of this theory, but I think that the Wal-Mart customer pays with cash or a form of cash and the Home Depot customer pays with debt. If so, it will be interesting to see which customer runs out of buying power first. Lastly, did you notice in the recent report that permit applications for future housing are significantly lower than anticipated? Hmm.”
Reader Pam H. said online shopping is a key factor that should be taken into account when it comes to analyzing retail sales. Her take:
“One major factor that I didn’t see discussed was the relatively new merchandising giant, Amazon.com (AMZN). People, including myself, seem to have discovered how convenient shopping online can be and how efficient this is.
“You don’t have to wait long to receive your order, and to avoid the crowds at Wal-Mart in the checkout and blocking the aisles in the shopping areas is terrific. Home Depot really doesn’t really have that much of this sort of competition.”
Finally, Reader George E. offered this pessimistic take: “As a sophomore student taking my first Economics 101 course, we learned that the cause of the Great Depression was NOT the 1929 stock market crash, but the fact that too much money became concentrated into too few hands.
“With income and wealth inequality as bad or worse now than it was in 1928, and the fact that 90% of the anemic economic growth since the 2008 Meltdown has gone to the top 1%, only the facts that the dollar is the world’s reserve currency (for the time being) and the Fed’s injections of monetary ‘EMT saline solution’ into the collective economic ‘body’ has kept it from going into fatal shock.”
Thanks for weighing in. It’s obvious that the economy lacks the underlying, powerful, widespread income growth that we’ve seen in other recoveries in the 1980s and 1990s. That’s why overall GDP growth remains anemic, and why we seem to be just sputtering along – not collapsing, but not accelerating either. Unless and until we can break out of this malaise, it’s going to be tough to place widespread, aggressive bets in sectors like retail.
If I didn’t get to your comments, don’t be discouraged. I will try to do so in a future column. And if you didn’t share any, don’t keep those comments bottled up. Share at the website today.
Looks like the Chinese Plunge Protection Team got to work late in the day over there. After dropping another 5%, the benchmark Shanghai Composite Index miraculously rallied to close up by a little more than 1%. One catalyst appeared to be securities filings showing that state-backed entities were becoming large shareholders in several leading firms.
Greece’s latest bailout secured approval from the German parliament today. The vote for the $95 billion bailout was 454-113, with 18 legislators abstaining. The move virtually guarantees Greece will get some borrowed money in time to make a 3.2 billion euro payment on previously borrowed money by Thursday. Because that makes all the sense in the world, right?
Home Depot turned in strong earnings yesterday, but competitor Lowe’s (LOW) couldn’t manage to do the same. Profit per share came in at $1.20 in the fiscal second quarter, missing analyst estimates by 4 cents. Same-store sales growth was only 4.3%, the weakest in five quarters.
The little blue pill now has competition from the little pink pill. Privately held Sprout Pharmaceuticals got Food and Drug Administration (FDA) approval for the drug Flibanserin (brand name Addyi) to treat hypoactive sexual desire disorder, or low levels of libido, in female patients. The FDA voted in favor despite concerns about its effectiveness, two past rejections, and side effects like low blood pressure and drowsiness.
Do you have any opinions on the latest Greek bailout, or China’s ongoing, ham-handed market interventions? The apparent inability for Lowe’s to go toe-to-toe with Home Depot, or the latest drug approval from the FDA? Hit up the website and share your thoughts when you can.
Until next time,