|Here’s a quick recap of the important news of the day …
Now let’s talk about what drove today’s crazy action.
Last year around this time, we suffered a massive “Taper Tantrum.” Former Federal Reserve Chairman Ben Bernanke hinted that before long, he would move to dial down QE. That caused stocks and bonds around the world to collapse, and sent volatility through the roof.
Today, we got smacked with something else — a “Tepper Tantrum.” Lauded hedge fund manager David Tepper told an audience at a Las Vegas conference that “It’s nervous time.” He added: “I’m not saying go short, I’m just saying don’t be too frickin’ long right now” and “The market is dangerous right now.” Those words were enough to crater stocks across the board.
“Stay focused on very specific, highly rated stocks in sectors that have positive, long-term bull markets.”
Why the heck are investors listening to Tepper? Well, for one thing, he made more money in 2013 (about $3.5 billion) than any other hedge fund manager on the planet. That has earned him a lot of respect among institutional investors.
For another, the Appaloosa Management skipper famously said on CNBC in September 2010 to “buy everything” because of an improving economy and his belief the Fed’s QE program would inflate asset prices across the board. The stock market took off that day, and pretty much hasn’t looked back since.
|David Tepper made more money in 2013 (about $3.5 billion) than any other hedge fund manager on the planet.|
Does it really pay to follow the advice of guys like Tepper? Is he the 2010s version of the brokerage firm from the 1970s and 1980s, the one whose commercials — “When E.F. Hutton talks, people listen?” (My personal favorite was the one with the kids in the classroom at the beginning of this clip, by the way.)
Well, I take into account lots of indicators when I decide whether to recommend stocks, bonds, currencies, and every other asset. One man’s or woman’s opinion is just that — an opinion. But it’s clear from my quote screen today that Tepper’s opinion matters to other investors.
I mean, we had a range of mixed economic news today — some good (Empire manufacturing index, initial jobless claims), some bad (consumer inflation, industrial production). We didn’t get much on the earnings front, besides a lousy report from Wal-Mart Stores (WMT, Weiss Rating: B). Yet we suffered the worst percentage loss for the Dow since April 7. That speaks volumes.
My advice remains the same:
Stay focused on very specific, highly rated stocks in sectors that have positive, long-term bull markets. My areas of focus have been aerospace, domestic energy, health care, and the like.
Avoid doggy sectors plagued by lackluster demand, like mortgage lenders and housing.
Take profits periodically when you have them. Don’t panic just yet, but watch to see if this divergence between some indices (Dow Industrials, S&P 500) and others (Nasdaq Composite, Russell 2000) persists. If so, I’d consider that a warning sign of more potential turmoil to come — and I’d dial down my stock exposure even more!
|OUR READERS SPEAK|
Now, let’s talk inflation. Boy did our discussion there strike a nerve! Turns out many of you are seeing the exact same things I am, even if Janet Yellen and the rest of her Ivory Tower Fed economists don’t.
Reader Matt McG. said: “When you remove the cost of food and fuel from the Consumer Price Index (CPI) of course there is little inflation. However, the government has created so many ‘something for nothing’ transfer payment programs it must cut outlays somewhere, so the Social Security recipients, retired military and civil servants are cheated from a proper annual inflation adjustment while the rest of the nation suffers exceptional inflation in food and fuel costs.”
Reader Jon J. added: “Actual inflation is approximately 2.5-3 times government figures. With most of the central banks devaluing their currencies in a race to the bottom, there will be severe negative consequences. You can’t get something for nothing, no matter what politicians tell you.”
To cope with the surging cost of food, energy, and other products, Reader Brad suggested making a list before shopping, fill that list, then LEAVE! He also advises making sure you aren’t hungry when you hit up the grocery store, and avoid the products right up front — the expensive, calorie-laden munchies!
Reader Annabel Q. recommended avoiding packaged foods altogether and going bulk. She eats mostly organic food, and said by cooking extra beans and other natural foods, then freezing what you don’t need to eat right away, you can save money!
Keep those great ideas coming over on the blog everyone!
|OTHER DEVELOPMENTS OF THE DAY|
The economic data was all over the map today. April industrial production slumped 0.6 percent against expectations for no change, and the Consumer Price Index rose 0.3 percent, showing that inflation is once again picking up.
But the May readings showed a noticeable pick up in regional manufacturing activity. The Philadelphia Fed Index came in at 15.4, above expectations for a reading of 9.1, while the Empire Manufacturing Index surged to 19 from 1.3. Initial jobless claims also plunged to the lowest since May 2007.
The SPDR S&P Homebuilders ETF (XHB) got rocked today, falling to a six-month low. The culprit: The drop in the NAHB Housing Market Index to 45 in May from 46 in April. That’s the worst reading since last May, confirming my “Echo Bust” warnings are dead on target!
The National September 11 Museum opened in New York City today, with a dedication ceremony attended by President Obama and the families of 9/11 victims. Never forget, and be sure to check the museum out the next time you are in New York City.
Reminder: If you have any thoughts to share on these market events, all you have to do is hop on over to the blog and leave your comments.
Until next time,