You know about Batter #1: European Central Bank President Mario Draghi. He offered up a heap of easy money measures on Thursday, Dec. 3. But the market tanked because it judged that he didn’t go far enough.
Draghi tried to repair the damage by delivering another one of his “we’ll do whatever it takes” kind of speeches in New York the next day. That helped drive the Dow Industrials up by 369 points. But the rally completely failed shortly thereafter.
Then there was Batter #2: Federal Reserve Chairman Janet Yellen. She followed up this Wednesday’s rate hike with lots of talk about how any further increases would be gradual, and how the economy was plenty strong enough to handle it.
That paid for a rally of around 224 Dow points … but it lasted only 24 hours. The Dow plunged 253 points yesterday, completely erasing that gain, and then tumbled nearly 370 today.
|The Japanese central bank has moved again to spur the domestic economy. Has it failed again?|
Overnight, Batter #3 took his swing. Bank of Japan President Haruhiko Kuroda announced several modifications to that country’s $657 billion-per-year QE program. They included a change in the maturity range of bonds it’ll buy, additional stock ETF purchases, and a hike in the permissible level of purchases of Japanese REITs.
That initially sent Japanese stocks higher and the yen sharply lower. But then investors grew to appreciate that the total amount of QE wasn’t actually going up, and that the stock purchases would be offset by later sales.
And let’s face it, the BOJ has been doing QE for more than a decade with little success in spurring lasting economic growth or inflation. That’s a key reason one JPMorgan Chase economist to the measures by saying, “This all simply highlights the fact that it’s not easy to push on a string.”
So what happened? Japan’s benchmark Nikkei 225 Index tanked almost 900 points from its intraday high through the close. The yen took off like a scalded cat, a typical “risk off” trading move.
This just underscores the point that central bankers are no longer all reading from the same playbook, or all pulling in the same direction. Some are easing, some are tightening, and others are throwing whatever they can against the wall to see what sticks.
|“Central bankers are no longer all reading from the same playbook, or all pulling in the same direction.”|
They’re also trying to respond to every single swing in asset prices, something they never used to do. That’s increasing volatility, rather than suppressing it, and leading to some spectacular strike outs like the three I just wrote about.
My advice? Take advantage of these wild swings to maximize your profits. For your more speculative funds, use active investments that hedge against downside risk and generate profits from moves lower in vulnerable stocks. I just recommended subscribers to my Interest Rate Speculator take two more rounds of profits today, in fact.
For your core capital, keep a higher percentage of your funds in cash and invest in less economically sensitive stocks with lower volatility and decent yields. That should help insulate you against global economic weakness and the increasingly turbulent environment we find ourselves in.
So what do you think of the “batting average” of the world’s major central bankers? Are they failing at their jobs? Or are the markets going to increasingly take matters into their own hands regardless of what Draghi, Yellen, and Kuroda say or do? Are there other strategies or pointers you want to share with your fellow investors, in addition to those I offered today? Use the Money and Markets website as your outlet.
It’s been one heck of a tumultuous week — with stocks initially surging after the Federal Reserve rate hike … then tanking a day later. What does it all mean, and how are you reacting?
Reader Howard said he’s worried about underlying economic growth at this time: “The biggest concern I have are the real numbers, not the rubbery ones. What is the government doing to encourage real jobs and growth, not just seasonal fluctuations?
“Governments around the world can spend two weeks in France promising action on climate change, yet here on the ground, many folks are looking for real leadership on many other fronts.”
Reader David weighed in on the outlook for several markets in the wake of the Fed, saying: “Taking some money off the table and spending it into the economy is not that bad of a plan. I guess you could hoard it in your safe, too, but I don’t know if any people that think like that.
“Oil is about half what it was last year, having taken out its low and continuing toward a floor. You could go wrong building a position, but timing it out to think you’re going to hit it just right is tough. Gold is still early for me — maybe next year.”
For his part, Reader Ted F. offered the following take on stocks: “I have a bad feeling the market doesn’t know how to react to all the fun and games going on — all the junk bonds and loans used to buy back stock and buy other companies for way above their actual value. Now, the money is going to cost more and the hope has to be that the economy and markets for the overpriced buyouts will expand fast enough, and margins increase enough, to service the bonds and loans.
“Rerolling the loans and reselling the bonds will carry higher interest. The next will be which of the bonds and loans go bad. It looks like the subprime loans went from real estate to corporate. Like the old folk song says, ‘Who knows what tomorrow shall bring?'”
On the other hand, at least a few of you are going bargain hunting here. Reader Tommr said: “The ‘Wall of Worry’ is still very solidly in place. I think that after the ‘Triple Witching’ is over and the tax selling subsides, the markets will shoot higher. Just sayin’.”
Reader $1,000 Gold added: “I went ahead and bought a ton of stocks again yesterday. This is my third purchase during this correction. Basically, I put my money where my mouth is. if I’m wrong? It’s only money. I can always make more. But I gotta’ walk the walk, not just talk the talk.”
Thanks for weighing in. None of us can know for certain whether the recent turmoil is just pointing to a minor correction, or if it’s the start of something worse. But you know that I take my cues from my credit market indicators. They haven’t led me astray in the past, and they continue to point to more trouble ahead. So I will remain cautious heading into 2016 unless and until I see more stability in credit.
Have a great weekend — and try not to get stampeded at the mall if you’re doing some last-minute Christmas shopping. Or if you’d rather comment here than fight the crowds, go right ahead.
Speaking of currency turmoil, another emerging market suffered a run yesterday — Argentina. The country’s peso plunged as much as 30% in value after its new president Mauricio Macro announced plans to ease capital controls, and bring the official exchange rate more in line with the black market exchange rate available on the street.
The Wall Street Journal expanded on the trend I discussed yesterday, namely that Treasury yields plunged yesterday in the wake of the Federal Reserve’s first short-term rate hike in more than nine years. It cited everything from strong global demand for U.S. debt to divergent monetary policy around the globe to economic worries.
Embattled hedge fund manager and drug industry whipping boy Martin Shkreli was charged yesterday with conspiracy to commit securities fraud, conspiracy to commit wire fraud, and other related civil charges. The 32-year-old pled not guilty and posted a $5 million bond as bail.
What do you think about the latest currency and bond market turmoil — does it signal that central banks are losing control? How about the Argentine default … does this show that the emerging market crisis is going to persist? Any other thoughts you want to share? Then visit the comment section below and post away.
Until next time,
P.S. The United States is now even MORE of a safe haven than ever before. Larry Edelson explains how the Fed’s decision virtually GUARANTEES that the U.S. dollar and U.S. stocks will be in greater demand than ever before.
Click here to read Larry’s special report to find out how to profit from the Fed’s decision in the years ahead.