Since then, it’s been a one-way trip higher. The Dow rose as high as 16,486 today — meaning we’ve tacked on almost 1,000 points in less than a week. That’s raising an intriguing question: Is this the “Big Turn?” Or is this just the next “Big Short” moment?
The bull argument is based on two ideas: 1) The European Central Bank has solved the crisis over there, meaning any losses in vulnerable financial institutions will be “contained” and 2) The OPEC deal to freeze output will put a floor under crude oil prices. There was also a bit of more positive economic news today: Industrial production rose 0.9% in January, while capacity utilization rose to 77.1%.
The bear argument is based on several alternate ideas. One is quite simple: There is no way the ECB has a handle on the disastrous situation in the European banking sector. These companies are losing money hand over fist, their profit margins are collapsing, and they’re going to get overwhelmed with losses on risky bonds and loans.
Some of the others I’ve heard, or put forward myself, include the following: The OPEC deal locks in near-record or record levels of output, rather than reduces it, and Iran refused to comply with it today, anyway. The U.S. economic outlook is deteriorating even as many foreign economies remain challenged.
|The bulls and bears are facing off at a critical turning point|
And most importantly, from my perspective: The simultaneous, widespread unwinding of asset bubbles in everything from junk bonds to commercial real estate (CRE) to M&A/private equity/stock buybacks is too powerful for central bankers to paper over. That line of thinking got some extra confirmation from the Wall Street Journal yesterday, which talked about the multiple threats facing the CRE industry.
So the fundamental question comes down to which set of arguments are more powerful. If you believe the banking and oil woes are fixed, this could be a Big Turn higher. If you believe the woes I listed are far from over, then this is Big Short moment — a time where you add new inverse ETF or put-option positions before the next leg down.
I got very bearish on this market about 1,800 Dow points higher than we are now. And frankly, I haven’t seen much to change the big picture outlook. I can’t rule out a further oversold rally, to something like 16,900-ish on the Dow. But I wouldn’t go chasing it for more than a flip. Or in other words, I’m still leaning toward Big Short over Big Turn.
|“I’m still leaning toward Big Short over Big Turn.”|
But that’s just my take. What’s yours? Is a lasting turn at hand here? Or is the broad trend still lower? What supporting arguments would you cite for either view? Do you think financials and oils are “buys” here? Or is this another chance to get out at better prices – or re-load with fresh inverse positions? Hit up the comment section and let me know which way you’re leaning.
Bank stocks and oil prices were already two key topics you were discussing online in the last 24 hours, too.
Reader Donald L. said: “The banking turmoil is NOT contained for the simple reason that the underlying problems are still there. Until the conditions of debt-servicing exceeding productivity, overspending by governments, and shrinking real income by consumers are addressed, the slide will continue. It’s simply a matter of monetary and fiscal physics.”
Reader Lifestudent38 added: “Jawboning will only serve to ‘contain’ the crisis in the short- to medium-term. However, this only extinguishes prevailing fires and fails to remove the box of matches causing the fires. As time progresses, more and more fires will appear until all is burned down, leaving only an empty matchbox behind.”
Finally, Reader Howard said: “Mario Draghi is a front man pretending the walls won’t come down, while holding back the dykes from collapsing. Regardless of what he says about bank strength since last time, their combined debt load has increased. If everything was great, then why aren’t interest rates at 4 or 5 percent?”
When it comes to oil, Reader Gordon offered this skeptical take on the latest OPEC proposal: “Anybody that would put any faith in a deal between Russia and the Saudis is dreaming. This is only round one and they are making a pitiful gesture to see if the market goes for it.
“But sadly, smoke and mirrors are no good. There is just too much physical oil out there, and that has to get used up first. This deal will do nothing to address this issue. American frackers are just sitting back waiting to for someone else to do the heavy lifting for them.”
On the other hand, Reader Jim suggested there may be something to this effort: “The fact these four producers have opened a dialogue is significant. This process is usually done incrementally. Further agreements could be made in coming months.
“I agree that it won’t affect current prices. But they have said they want to stabilize prices. Bumping along the bottom at around $30 a barrel will do the real damage to weak producers and soon to suppliers and services as well.”
Thanks for weighing in. These are incredibly volatile times in the financial and energy sectors, and the cycle of collapse-policy response-rally-renewed collapse is accelerating. That creates both risks and opportunities, and I’ll do my best to help you survive and thrive amid the gyrations. Also feel free to add your own comments to the discussion below.
Apple (AAPL) has decided to fight a federal government effort to gain access to the data on dead terrorist Syed Rizwan Farook’s iPhone 5c. Farook and his wife shot up a state health-program office complex in San Bernardino, Calif., in December, killing 14.
The government has tried to access all the information on his phone, but has been unsuccessful. It sought and received a court order compelling Apple to help it crack the phone’s security features. But Apple is refusing, saying it would create a “back door” that would have widespread negative consequences for privacy.
Nothing like a $70-billion loss to make Japanese politicians leery about allowing more government pension-fund money to be invested in stocks. Japan’s $1.1 trillion public pension fund invests around $520 billion in stocks through outside-asset managers, and it wanted to do so directly. But that plan was just shelved for three years amid a backlash over recent losses.
I bring this up to you because sovereign wealth funds, central banks, and other public investors piled into stocks at or near the peak in recent years. That has left them nursing hefty losses, and inflows are likely to turn into outflows as a result. That, in turn, will put downward pressure on equities over time.
Canadian airplane manufacturer Bombardier Inc. (BDRBF) missed fourth-quarter earnings estimates, and said it would slash 7,000 jobs over the next two years. That amounts to around 11% of its workforce, and comes amid efforts to secure funding from the Canadian government.
Neel Kashkari is a former Goldman Sachs Group (GS) exec who gained notoriety for managing the TARP bank bailout program here during the credit crisis. Now, he’s the Minneapolis Fed president, and he’s advocating for potential breakups of the nation’s largest banks. The effort would face a huge amount of resistance in Washington and on Wall Street, so we’ll have to see if it gains any traction.
What do you think of Apple’s resistance to the government’s investigation? How about the latest large-scale layoffs in the industrial sector? Any thoughts on the idea of breaking up large banks to make the system more resilient to future bailouts? Share them in the comment section below.
Until next time,
P.S. Next Tuesday, CNBC regulars Kathy Lien and Boris Schlossberg will be hosting their quarterly briefing for members of their Global Currency Investor wealth-building service.
In more normal times, these live events will be for MEMBERS ONLY. However, these are not normal times and this will not be a normal briefing.
It will be a solemn warning — and for some, a terrifying one — of the catastrophe now building in the global economy and the U.S. stock market.
It is vital that you attend this briefing. To make sure we can accommodate all of the viewers, we ask that you let us know you’re coming.
Simply click here to register, and you will be able to submit your questions for Boris and Kathy.