1. Is the economy heading into recession or not? Data on manufacturing, services, auto and retail sales, and commercial real estate tell me we are.
The jobs data is somewhat more mixed. But it’s worth noting that a broad index of labor market conditions – one that Federal Reserve Chairman Janet Yellen herself has touted as incredibly accurate and useful – has now dropped for six out of the past seven months. That has only happened twice in the past two decades. Once was when we were heading into the dot-com recession and once was when we were heading into the Great Recession.
2. Can asset prices just keep going up even if growth tanks? Let’s face it. The underlying fundamentals haven’t mattered as much for asset prices in the past several months. Why? The never-ending supply of central bank interventions, which have crushed volatility and fueled bubble-icious trading in a wide range of assets.
But can that really persist forever? Or are we finally at a tipping point? Could the S&P 500’s breakdown from the late-July and early-September period of record-low volatility be a major shot across the bow for complacent investors? It sure is tempting to answer that latter question in the affirmative.
3. What investments can still prosper in this tricky environment? Steady Eddie companies with high Weiss Ratings, solid yields, and lower economic sensitivity have performed well for us. So have targeted put option and short-sale trades in “Everything Bubble” sectors and stocks.
If the economy continues to weaken … autos and commercial real estate slump … and credit conditions continue to tighten in the banking sector, those kinds of investments should continue to pay off. The trick is knowing which companies to target, and when.
4. Is gold one of the single-best options? As for gold, it remains one of the best-performing investments on the planet in 2016. The SPDR Gold Shares (GLD) is up almost 26% this year, more than triple the return of the SPDR S&P 500 ETF Trust (SPY).
|Now, gold remains one of the best investments in the world.|
Gold wins as a “high-yield alternative” to negative-yield government bonds. It wins as “chaos insurance.” And it wins as protection against out-of-control central bank policy experimentation. I can easily foresee a scenario where it takes out resistance around $1,400 an ounce, then runs back toward its 2011 highs near $2,000. But interim corrections and stumbles are entirely possible.
My suggestions? First, read and digest my comments here, as well as the articles linked above. Second, keep an eye on Money and Markets for ongoing guidance. And third, join me in New Orleans from October 26-29 if you can. I believe you’ll get a ton out of this conference, which features presentations and interactive discussions with some of the best and brightest minds in the investment universe.
All you have to do is click here to register. Or call 800-648-8411 for details about the show’s content, venue, and more. Be sure to mention I sent you.
In the meantime, how would YOU answer these questions? What is really going on in the economy? Will the disconnect between asset pricing and underlying fundamentals get corrected, and if so, how? What do you think of Safe Yield stocks, gold, put options on vulnerable stocks, and other ways to play this market? Let me hear from you in the comment section below.
The Bank of Japan and Federal Reserve have spoken. The BOJ launched a whole bunch of new, so-called “stimulus” measures (even though every previous move has failed) … while the Fed punted yet again. What does it mean, and what’s coming next for the economy and the markets?
Reader Randy said: “Government meddling is the main reason we can’t solve the ongoing problem with economies all over the world. Never before have we had so many governments, along with the central banks, tinkering and experimenting with their economies through policy, instead of benefiting from a free market policy based on true supply and demand.
“Artificial stimulation of particular parts of an economy can and does produce an artificial fat spot in one sector of an economy. That sector then collapses because it’s lopsided, or out of balance with the real economy. Every government and central bank on the planet is tweaking and pumping money, influence, and special deals for special people. It is corruption at its finest hour.”
Reader Chuck B. added: “As of the last quarter, the Fed has got its 2% inflation rate. If it also succeeds in dropping the value of the dollar against other major currencies, we are likely to see even greater inflation. Americans are having trouble paying bills now without raising their debt levels. Why do they want us to be even poorer?”
Reader Tom referenced the potential impact of the upcoming election on policy: “Why the Fed would raise rates before the election is hard to figure. They have been behind the curve for years.
“I am also thinking that maybe the economy is stronger than the GDP figures say. I don’t think that current methods of computing GDP are all that accurate. But I think the economy could do better without endless interference from big government and mindless meddling from a Fed that is fairly clueless.”
Finally, on Wells Fargo, Reader T. said: “So 5,300 working slaves at Wells Fargo do what management told them to and get issued pink slips … and management keeps their commissions and jobs. A day of reckoning will come. As for art, a fool and his money are easily parted.”
Thanks for taking the time out of your busy days to comment. I personally find the situation at Wells Fargo revolting. But then again, banks and bank executives have ripped customers off and rigged virtually every market on the planet in the past decade … and gotten away with nothing more than fines and/or slaps on the wrist. So what else is new?
Any other thoughts you’d like to share? Then hit up the comment section and fire away.
A whopping 500 million Yahoo (YHOO) users had their accounts hacked in late 2014, with names, email addresses, birthdates, phone numbers, and passwords stolen. Yahoo believes it was a “state-sponsored” attack, suggesting hackers backed by China or Russia were to blame.
The laughable rumor-mongering in the oil market continued today, with the latest story being that Saudi Arabia would agree to production cuts if Iran freezes its own output. The problem is that Iran wants to boost output to pre-sanction levels … and that it’s one of Saudi Arabia’s major enemies in the Middle East. Bottom line: I wouldn’t hold your breath waiting for a deal.
Wells Fargo (WFC) CEO John Stumpf stepped down from a board that advises the Federal Reserve Bank of San Francisco on economic and industry issues. The move is just the latest in a widening scandal over Wells Fargo’s allegedly fraudulent opening of 2 million accounts for customers who didn’t want them (or even knew they were opened in the first place).
What do you think about the latest mega-breach of consumer data at Yahoo? How about the mixed messages coming out of the oil market? Should Stumpf step down as the head of Wells Fargo, or maybe even face criminal prosecution? Share your thoughts here at the website.
Until next time,