But there’s a very simple, solid reason for that: Out-of-the-way places can yield major market clues — the kind you won’t get if you just watch a few minutes of CNBC or skim The Wall Street Journal website at the end of the day.
For instance, I’ve spent time covering all of the following …
> The interest-rate swaps market.
> The high-yield debt market.
> The leveraged-loan business.
> The London Metal Exchange.
> The market for foreign companies that trade here in the U.S. as American Depository Receipts (ADRs).
The one theme tying them all together is that they’re all sending out cautionary signals — signals I believe we need to pay attention to.
Just go back to the last major market top and downturn in the credit cycle. I noticed, and wrote about, a handful of high-risk, obscure subprime lenders that were starting to get into trouble in late 2006 and early 2007, even as the mainstream media wasn’t paying much attention.
Specifically, it started with a relatively obscure company called Ownit Mortgage Solutions going belly up in December 2006. Then it was the unfolding disaster that was New Century Financial in February 2007.
|There were plenty of warning signs of an impending disaster in financial markets for those who cared to look from 2006 onward|
Then it was the behind-the-scenes deterioration in the markets for mortgage-backed securities, asset-backed securities market and collateralized-debt obligations, and the financial system overall. As I warned at the time, these events foretold disaster for financial stocks and the broader equity markets.
The Dow, S&P 500, and Nasdaq Composite tried to ignore those warnings — rallying for several months. But they ultimately started breaking down in late 2007, and didn’t look back until the bear market came to a close in March 2009.
Investors who listened to these warning signals from the more obscure corners of the capital market, and took action to protect themselves before the broad market collapsed, could have saved fortunes. Those who bought select investments that rise in value when vulnerable stocks fall, could have made even more.
Now I am not saying that every single stock or credit market cycle is the same. I am also not now predicting a repeat of 2007-09. And you can never be 100% sure how policy responses or future developments could change the outlook.
|“I’m not the only one who’s starting to notice these weird moves.”|
But I feel it’s my duty to let you know about the cautionary signs I’m seeing in out-of-the-way places and markets. I’m not the only one who’s starting to notice these weird moves, either — as these recent Bloomberg stories here and here make clear.
So my best advice is to keep your eye on my Money and Markets updates. The latest minor daily fluctuation in the Dow might lead the evening news. But there’s a lot more going on out there, and those events could hold the key to the next major, long-term move for stocks.
What do you think? Are the signals coming from interest-rate swaps, foreign metals exchanges, and other less-followed corners of the capital markets important? Or should our attention be focused elsewhere? Do the lessons of the last major credit cycle matter? Or are we in a new world where those pre-crisis market moves no longer drive stock prices? Are you seeing any esoteric bearish … or bullish … indicators that I haven’t covered?
Don’t hold it in. Share your thoughts online here.
Yesterday, I shared some of my personal thoughts about traveling to Europe and asked for your views in the wake of the French terrorist attacks. I’m glad that many of you responded.
Reader Bonnie said: “I too love to travel. I was a flight attendant for 12 years in my earlier days and never stopped going places. I must say, though, that what is happening in the Middle East and Europe these days has left me cold on planning a new trip to that part of the world.
“I went to Turkey 3 years ago and adored it, but don’t plan a return anytime soon. I think I will wander south to Argentina and Chile, perhaps Colombia, and wait and see if we can get a handle on ISIS before venturing to Europe. There are also so many places left in the U.S. and Canada that call to me as well.”
Reader Steve C. said: “I’m planning a river cruise through much of Europe’s problem areas next fall and not sure it is the wisest thing to do. But we will go anyway, since it is prepaid. If I had it to do over, we might have gone somewhere else.”
Reader Jean H. offered some perspective on the threat to personal safety from terrorism by saying: “You have one chance in 39 of being a victim of violent crime in Camden, N.J. Paris and its suburbs have over 12 million people, and there are approximately seven million visitors each year. Somehow I’d feel safer in Paris than in Camden.”
Reader Mary added: “I am much more vigilant, everywhere. I am so glad I visited Italy last summer, and I would love to see more of the world. But the bombers like to target civilians. I enjoy a glass of wine, music, and sports, so it is likely I would be somewhere where terrorists would leave a backpack or shoot people. Sadly, I’m probably staying home.”
Finally, Reader Chuck B. offered this advice: “If people hunker down in a hole, so to speak, as a reaction to terrorists, then the terrorists win. Everyone should go on about their normal lives as much as possible.
“Keep your eyes open, of course. You should do that in any case. But don’t change anything you don’t have to. Live, love and laugh as much as you can.”
Thanks for weighing in. I’ll be monitoring data on bookings, cancellations and earnings from the travel industry in the weeks ahead to see how things shake out and whether there are any investment opportunities. So stay tuned for more updates as we continue to get news on the investigation in Europe — and feel free to add any more comments you might have below.
French police assaulted an apartment complex in a Paris suburb early today, killing two and arresting seven. They were seeking ISIS operative Abdelhamid Abaaoud, who was believed to be holed up in the region. A woman reportedly shot at police before blowing herself up in the raid.
President Obama warned China against continuing to bolster its military presence in the South China Sea. Speaking at the Asia-Pacific Economic Cooperation summit in Manila, he said China should back off its base-building and island-fortifying activities there.
Housing starts fell 11% in October to a seasonally adjusted annualized rate of 1.06 million. That was the weakest since March and below expectations. But building permit issuance rose 4.1% to a 1.15 million SAAR. Starts were held back by the multifamily sector, which includes buildings with units for rent or sale … while permits benefitted from strength in applications to build single-family homes.
Ever paid for something at a festival or small business using a Square device plugged into someone’s smart phone? Well, the company behind that technology is going public — and the market reception will be closely watched.
That’s because Square’s private-market valuation soared in the easy money era … but it’s being brought back down to earth by the tightening of the IPO market and worries that tech valuations got out of control. It’s also losing money hand over fist, even as revenue is growing sharply.
Do you think Square is a good buy? What about the decline in multifamily construction — could that be a sign the rental property boom is beginning to cool? Any thoughts on the U.S.-China tensions Obama discussed in Asia? Let me hear about them below.
Until next time,
P.S. Larry Edelson just released his new report, “7 Commodity Windfalls for 2015-2021,” that could prove to be the most profitable report you read all year.
It’s free. There’s no obligation, no strings attached — and it could make you very, very rich.