The crazy volatility continued on Wall Street today, with a 620-point Dow rally coming just hours after an intraday high-to-low plunge of about 600 points yesterday. If you’re not seasick yet, you have a stronger stomach than me!
So what’s next? What might give us our next set of market clues?
How about Jackson Hole, Wyoming? I remember passing through there on one of my family’s “Griswold-style” trips out West as a kid. Beautiful scenery … wonderful hiking … and I even managed to get the high score and leave my initials on a Ms. Pac-Man machine out there.
But starting tomorrow, there’s something much more important going on there than breathing fresh air or chasing Inky and Blinky around an arcade game screen. The Kansas City Fed will be hosting its 37th annual meeting, which draws Federal Reserve policymakers as well as foreign central bank and government officials. The keynote address will be delivered on Saturday by Fed Vice Chairman Stanley Fischer.
Market participants are behaving like monetary junkies ahead of the gathering, looking for any hint that the Fed might defer a rate hike beyond its Sept. 16-17 meeting. Some also appear to be hoping a foreign central banker or two might suggest doing more QE or otherwise trying to stem the bleeding in the market.
Me? I wouldn’t be surprised if someone, somewhere tries to throw stocks a bone. We’re deeply oversold, we’re seeing plenty of market turmoil here and overseas, and we’ve seen time and again that policymakers are beholden to Wall Street. A short-term rally may very well be in the cards, with Jackson Hole comments as a catalyst.
|Along with great scenery, Jackson Hole could provide the clues to the next move by the Fed.|
Where I differ … dramatically … from mainstream, conventional Wall Street thinking is on the longer-term impact of any new measures. Specifically, I don’t think QE by anyone, anywhere will have anything like the impact it had in the past on markets or the economy.
The list of reasons is long:
The economic and market fundamentals are deteriorating rapidly around the world.
The bond, currency and foreign stock markets are all signaling that U.S. stocks are STILL the odd man out, and may need to play “catch down” to get to fair value.
Multiple rounds of easing around the world haven’t done anything to spur lasting rallies. Yesterday’s huge pre-market rally in stock futures, and early regular-session gains, went up in smoke by the close – despite an aggressive round of Chinese rate cuts.
Even the release of relatively dovish Fed meeting minutes a couple weeks ago only managed to goose stocks for a half hour … after which time they gave up all those gains.
Speaking of the Fed, the St. Louis Fed itself just put out a paper saying that QE doesn’t work. I’ve been saying that for years, of course, but it’s nice to see the Fed finally agreeing with me.
Or in other words, after 6-1/2 long years of bull market behavior built on bullish expectations about cheap money and central bank policy, the jig is up. The times they are a-changing.
Several of my most trusted fundamental and technical indicators are showing that policymakers are losing their potency, and that you need to be selling into the bounces they cause, not buying.
|“Several fundamental and technical indicators are showing that policymakers are losing their potency.”|
Or better yet, for funds you can afford to risk in search of greater profits, consider buying put options or inverse ETFs into big rallies. That’s what I’ve been doing in my Interest Rate Speculator.
So what do you think about the big Fed confab? Are you expecting big news out of it? Or do you think it’ll be a bust for Wall Street? What about the possibility of a September rate hike, more QE overseas, or other policy decisions that could be looming? Are you expecting them, why or why not, and what impact (if any) will they have? Let me hear your thoughts over at the Money and Markets website.
We’ve seen a massive amount of market turmoil in the past week, and many of you weighed in on what it all means in the last 24 hours. I appreciate that, because we need to keep the conversation going in these volatile times.
Reader Rick shared his opinion of all the central bank intervention going on, saying: “While the phrase ‘pushing on a string’ is usually just used for interest rate interventions by central banks, I believe the Plunge Protection Teams are doing the same thing all over the world. Or are they just using taxpayer money to prop up the markets so that the big investors can continue to have funds transferred to them, with the help of central bankers on the way down as they did on the way up?”
Reader Kraig also brought up market interventions, saying they serve no useful purpose. His take: “We remember how well the Fed did with its massive money printing. Keep the federal tinkerers out and let Mr. Market right itself. It will do better without the Federal Reserve’s interference.”
Reader Chuck B. picked up the conversation, noting that governments have lost the trust of the markets. He said: “One thing the current uncertainty in the markets shows, is that governments can do whatever they choose to try to control a free market. But the success of those actions depends on the degree to which members of the markets trust their governments. East or West, there doesn’t seem to be a lot of trust in governments these days.”
And Reader Steven offered his view of where the major averages might go in the coming days and weeks:
“I’m going to make an educated guess as to where the Dow will bottom out in the near term. I think that the Dow Index will go down to 12,500+/- before the stock pricing is cheap enough for the ‘flea-market’ buyers to move in and buy up the distressed shares.
“If the governments and the central banks haven’t made the necessary corrections by then, the Dow will slide to about 9,300 — at which time reform of the present banking system will be made mandatory.”
Thanks again for sharing your thoughts. Many of my longer-term indicators are pointing to the return of a bear market environment, even as many of my very short-term indicators are suggesting we’ll see a rally. That’s a big shift from the last several years, and it definitely requires a new way of thinking about investment risk and strategy.
I would note that some of you also reported trouble logging into your brokerage accounts earlier this week. One suggestion: Consider having a backup account at another firm, just in case we see another severe bout of turmoil. That should help ensure you can at least trade at one venue to protect yourself and profit.
If you have other comments on these very important topics, be sure you hit up the website when you get a chance.
The European Central Bank could expand or extend QE over there if it needed to, in order to combat slower growth and falling commodity prices, according to ECB board member Peter Praet.
My response: Yawn! We’re long past the point where anyone has any illusions that QE works, with even the St. Louis Federal Reserve admitting it doesn’t a few days ago. Call it the law of diminishing returns — and the dwindling response from investors to this kind of verbal intervention further proves my thesis that we’ve entered a new market regime.
We got our first deal in the energy patch in a while, with oil services firm Schlumberger (SLB) agreeing to buy Cameron International (CAM) for $12.7 billion.
The price of $66-and-change was a whopping 56% premium to where Cameron was trading before the news hit the tape. We’ll see if other buyers step up and announce their own deals, given the once-in-three-decades valuations prevalent throughout the industry.
Republican candidate Donald Trump went toe-to-toe with Univision journalist and Mexican-American Jorge Ramos over immigration policy at an Iowa press conference. At one point, Ramos was kicked out of the conference. But then he was allowed back in and the two had a running debate – showing just how contentious the policy issue is.
Two soldiers from the NATO alliance were killed by assailants wearing Afghan security uniforms. The attackers were killed by return fire in the southern province of Helmand.
So what do you think of the latest energy sector deal? The ECB’s QE rumblings? The ongoing campaign news involving Trump? Let me hear about these stories or others I didn’t cover at the website.
Until next time,