But rather than serve up a bunch of bullishness or juicy stock tips, the billionaires who attended delivered warnings of bedlam instead!
Ray Dalio, chairman of the world’s biggest hedge fund, Bridgewater Associates (with $150 billion under management), said: “The risks are so much more on the downside” that the Federal Reserve can’t raise rates, adding “we’ve never been in a world that’s like this.”
Paul Singer, founder of the $27 billion hedge fund firm Elliott Management, was even gloomier, saying: “Eight years of ever-declining rates and ever-increasing radicalism in other monetary policies have not created a sustainable, accelerating uptick in growth. What they have done is created a tremendous increase in hidden risk … I think it’s a very dangerous time in the global economy and global financial markets.”
|Dire warnings for the markets.|
Billionaire Carl Icahn sounded yet another alarm when he took the stage, saying: “You look at the environment, and I think it’s very dangerous. You’re walking on a ledge and you might make it to the end, but you fall off that ledge and you’re really going to see trouble.” Icahn added that it doesn’t really matter whether the Fed hikes rates this year or not next year, “because either way there’s a problem.”
These aren’t the first such warnings from noted billionaires or fund managers, of course. Icahn has been saying for the past year that stocks are in big trouble. What’s different is the frequency, urgency, and magnitude of the warnings.
Everyone from Sam Zell to George Soros to Stanley Druckenmiller has piled on in recent months. And of course, CEO Jeffrey Gundlach at DoubleLine Capital (a firm with more than $100 billion in assets) recently said the best advice may be to “Sell Everything.”
I don’t blindly follow anyone in the investment world. I do my own analysis and research. Then I arrive at what I consider to be the best conclusions – and recommend investments designed to help you profit from them.
|“Icahn has been saying for the past year that stocks are in big trouble.”|
But as I’ve said before, these investors didn’t become legends in the business … or build up multibillion-dollar war chests … by making a bunch of dumb investment moves. They are genuinely worried about the mess we’re in as a result of economic stagnation domestically and bubble-blowing behavior by central bankers around the world. So that’s another reason why I continue to maintain a cautious investment stance – and recommend you do, too.
With that in mind, let me again ask the question I posed earlier this year: Are these billionaires on to something? Should you heed their warnings? Or are you getting sick of hearing them? What are your friends, family members, or investment advisers saying? Do they think now is a good time to invest, or are they urging caution? Hit up the comment section and let me know.
In the meantime, the ping-pong match in the markets continues, with big rallies and big sell-offs becoming the norm after a period of extraordinary calm. I’ve offered my take about where I expect markets to head next (lower). Now, I wanted to share some of your comments.
Reader Steve S. said he thinks stocks may be peaking: “As the old Wall Street saying goes: ‘They don’t ring a bell at the top.’ We may be seeing the beginning pop of the asset bubbles in stocks and bonds that have been created by central bank money printing. When the hedge funds and momentum players want to sell, who will want to buy?”
Reader John said the backdrop is difficult to analyze: “I think there is no playbook to understand the current economic environment. I think that the financial markets will continue to have calm periods, and then large volatility, and then calm again.
“This will continue until we get certainty and clarity around the U.S. presidential election, Brexit, and QE scale and duration. The strategy should be to trade the bumps and to make small gains regularly.”
Reader Thomas added this view on how to make money in this turbulent environment: “Crystal ball investment strategies based on good old-fashioned technical and fundamental analysis have become obsolete, out of the window so to speak. Thanks to central bank intervention, the new norm these days is to trade defensive with hedging strategies capable of producing a profit, no matter which way the market will go.
“To do this effectively, we need to think and act like market makers do. That is a skill set on its own, with new rules and tactics to make sure we do not lose our shirts (and pants) in the process.”
As for which parts of the market should underperform or outperform, Reader Al said: “I certainly agree with emerging markets and infrastructure. The emerging markets are in worse shape than the U.S. markets in terms of debt and growth as a result of debt.
“Infrastructure benefits from either a Trump or Clinton win domestically. Defense spending will increase domestically and internationally, with U.S. defense purchases from abroad on the increase due to China’s recent behavior in the region and rogue countries like North Korea.”
Lastly, Reader Dr. Dave weighed in on the scandal at Wells Fargo and the hefty payout its consumer banking head is walking away with: “Yet again we are shown that banks are beyond the law. If I pulled this type of fraud in my business and was found out, the only thing I would see is the inside of a jail cell. Apparently the justice system is skewed — the more you have, the more you get away with.”
Thanks for weighing in. Dave is absolutely right about the big banks. Over and over, they get nailed for fraudulent or sketchy behavior … and over and over, the executives who are or should be responsible for it skate. I have no idea when that will change, but I do know that it continues to outrage many average Americans.
As for the markets, what can I say? Intense volatility after an unnaturally long period of calm sure looks like a trend change signal to me. We’ve already seen two mini-meltdowns in the stock market last August/September and this January/February. It’s entirely possible we’re on the cusp of another, as billionaires like Icahn and Singer are warning about. Those key technical levels (2,100 on the S&P 500, 18,000 on the Dow) I mentioned earlier this week are the ones to watch.
Facing a slowdown in demand, buildup in inventories, and a surge in profit-crushing incentive use, Ford Motor (F) just warned that 2017 results will be worse than those in 2016. Ford also blamed the cost of investing in technologies like electric cars and autonomous vehicles for the profit warning.
I have repeatedly warned about “Peak Auto”, and explained how the auto sector is one of the single-most vulnerable in the entire market. Tightening lending standards are just another nail in the coffin.
LIBOR rates continue to climb inexorably, regardless of what Fed policymakers say or do. In fact, these key benchmarks used to price corporate loans, derivatives, and adjustable rate mortgages are hitting new highs that date all the way back to 2009.
Some of the blame lies with changes in money market fund regulations, which could lead to as much as $300 billion being yanked from funds that invest in short-term corporate loans. But is something else afoot? A surge in worries about corporate credit quality? That’s the direction I’m leaning given the magnitude and duration of this move higher. Stay tuned!
It’s official – Bayer AG of Germany is going to buy Monsanto (MON) for $57 billion, or $128 per share. The move will create a behemoth in the agrichemicals and seed business. It’s also the largest-ever cross-border takeover by a German company.
So what do you think about Ford’s earnings warning, and the prospects for the auto sector overall? Are its best days behind us, and what does that mean for stocks and the economy? What about the rise in LIBOR rates? Is it a major market worry? Or will ongoing M&A transactions, like the Bayer-Monsanto tie up, help support stock prices? You know where to weigh in, and I hope you take the time to do so.
Until next time,