|Dow||+421.28 to 17,778.15|
|S&P 500||+48.34 to 2,061.23|
|Nasdaq||+104.09 to 4,748.40|
|10-YR Yield||+.056 to 2.204%|
|Gold||+$4 to 1,198.50|
|Crude Oil||-$1.81 to $54.66|
Was that it? Was early Tuesday morning the “max pain moment”? The point of extreme panic and capitulation in everything from Russian rubles to U.S. junk bonds to Mexican stocks to volatility ETFs?
It just might be — and just as we’ve seen in the past few years, central banks were the catalyst.
First, the Central Bank of Russia announced seven measures designed to stabilize its currency, bond, and stock markets. They included everything from $7 billion in direct currency market intervention … to a pledge to recapitalize troubled banks … to the waiving of recognition of currency-related losses on bank balance sheets. Those moves came in addition to the massive hike in Russian interest rates a day earlier.
|Stocks surged in the wake of the Federal Reserve’s latest Federal Open Market Committee (FOMC) meeting statement.|
Second, Federal Reserve Chairman Janet Yellen laid the groundwork for short-term interest rates hikes in 2015 at yesterday’s Federal Open Market Committee meeting. But she tried to soothe sentiment by simultaneously talking about being “patient” with regards to future hikes.
Third, in a surprising move overnight, the Swiss National Bank actually cut rates into negative territory there. It lowered the rate on select deposits to -0.25 percent, meaning commercial banks will actually have to pay interest to the central bank to park money there for short-term periods of time.
The move is designed to fight Swiss deflation and discourage massive influxes of cash tied to the turmoil in Russia and elsewhere around the world. But it has the added side effect of pushing even more liquidity into the global markets — the same Global Money Tsunami I’ve been talking about for months.
|“We may be looking at a bottom that lasts well into 2015.”|
Result? Stocks soared yesterday, and soared again today. The action in the most heavily shorted sectors — energy, junk bonds, MLPs, and so on — stood out for being particularly aggressive. It looks so capitulatory, in fact, that we may be looking at a bottom that lasts well into 2015 … though it’s too early to say for sure.
Suffice it to say my advice to start picking and choosing amid the rubble in some of those sectors is looking very well-timed. I plan to continue doing so in the days ahead if the stabilization and reversal gathers even more steam!
What about you? Do you think the bottom is in for some of these hard-hit sectors like energy? Will the “sugar rush” for stocks provided by the U.S. Fed, the Russian central bank, and the Swiss central bank last? Or is it doomed to peter out? How are you positioning into year-end and early 2015 as a result? Make your voice heard at the Money and Markets website!
|Our Readers Speak|
Meanwhile, the surprise move to normalize relations with Cuba had many of you talking over at the website. Most readers were positive on the change, though there were some dissenters.
Reader Jon B. said: “On the one hand, I’m glad to see that the ice has been broken. Raul may not be Castro! So I’m in hopes that something substantive can come about for not only those who have had to flee but those who still remain!
“On the other hand, only time will tell. The Cuban people deserve a chance at some possible twinkling of light to flourish amongst the stagnation and darkness.”
Reader Axel K. added: “Great news that the U.S. is finally starting to restore normal relations with Cuba. We have reconciled with former enemies (think Vietnam) and treated them significantly better than we have treated Cuba, which never was at war with us.
“Diplomatic recognition simply means that one country acknowledges that another exists; it is not and never should be a moral judgment. I applaud President Obama for having the guts to tackle what has been a needlessly festering political sore for 53 years.”
Finally, Reader Stay D. said: “It’s about time. Cuba is a neighbor country. If we treat Cubans properly, the politics there will change gradually. Kudos to Obama to have the guts to do the right thing. Times are changing. We can improve Cuba; we have nothing to fear from them. As the conditions improve, people will change and appreciate.”
Still, not everyone is in favor of the move. Reader Fred said: “Cuba is run by a brutal regime that has murdered and tortured thousands and thousands of people … for nothing other than having a difference of opinion or possessing a desire for basic human rights. You might want to congratulate and sleep with that regime of genocide for a few trade dollars; I will pass. And shame on Barack Obama for his lack of compassion for the prisoners and victims that have suffered and continue to suffer at the hands of these killers.”
Cuba wasn’t the only topic of discussion though. Reader Carl responded to the Fed-fueled rally yesterday (and the follow-through today) with nothing but negativity. His take:
“The Federal Reserve, as usual, is using smoke and mirrors trying to fuel our economy … keeping interest rates low which hasn’t worked and will only prolong our sick economy. Besides, using bogus government numbers pulled out of thin air is a joke. Much like the Feds printing money out of thin air. Everything coming out of Washington is baloney.”
Finally, Reader Karl noted that the fallout from declining oil prices is spreading far beyond Russia — including just south of us here in the U.S. His cautionary words:
“Market pundits are claiming a partial victory for sanctions upon Russia in spite of crashing oil prices. The horrible knock-on effect of diminished tax revenues by governments is being experienced not just by Russia but by any oil exporting country. Flash: The commentators gleefully reporting that folks in Russia are ‘panic buying’ is also occurring in Mexico, Venezuela, Nigeria and Indonesia.
“Mexico gets 60 percent of its federal budget tax revenue from oil exports. If the price of oil does not recover, the 45 percent+ hit to their coffers on the 60 percent will drastically affect everything from food subsidies for tortillas, health care, education and revenue sharing with states and municipalities.”
Thanks for the thoughtful comments on so many different topics. I agree that the spreading damage from falling energy prices is a problem, and one reason why a policy response was increasingly likely.
Sure enough, the Fed did its best to calm markets on Wednesday and the Swiss National Bank followed up today. Russia also took several steps to halt the ruble collapse, and the result is the surge in energy stocks we’re seeing on our screens now. I believe we have seen at least a short-term bottom in sectors like MLPs and domestic energy stocks, and possibly one that will last several months.
If you want to add your voice to these important discussions, you know where to go — the Money and Markets website. So get cracking!
|Other Developments of the Day|
Whatever your political views on the normalization of relations between the U.S. and Cuba, one thing is clear. Business owners see it as a chance to rake in big bucks from serving a new market, close to home, that has been closed off for decades! As this Bloomberg story notes:
“Real-estate developers, sugar growers, medical-device manufacturers and telecommunications firms each see opportunity in friendlier relations between the U.S. and Cuba, which are separated by just 90 miles.”
Speaking of Cuba, the story of how this newfound détente came around is a very intriguing one. The Washington Post gives it the play-by-play treatment here.
Did the North Koreans “win?” That’s what some are wondering in the wake of Sony Pictures’ decision to can the release of its movie, “The Interview.” I’m curious what you think — sensible move to make sure American theatergoers are safe … or a shameless give-in to pressure from a rogue nation?
Too lazy to walk to the corner drug store to get shampoo? Absolutely, positively need to get that present for a special someone by 11 a.m., rather than tomorrow or next week? Then you’re in luck … at least if you live in New York City.
Amazon.com (AMZN, Weiss Ratings: D+) is officially rolling out its “Prime Now” service, which promises delivery of more than 25,000 items within an hour or two. More products and eligible cities will be added next year.
Any thoughts on these topics? Or others that are scrolling by on your TV screen? Then hop on over to the website and weigh in!
Until next time,