|Dow||-24.50 to 16,117.24|
|S&P 500||+0.27 to 1,862.76|
|Nasdaq||+2.07 to 4,217.39|
|10-YR Yield||+0.063 to 2.153%|
|Gold||-$4.30 to $1,240.50|
|Crude Oil||+0.94 to $82.72|
Flying in an airplane with no pilot.
Riding in a roller coaster with no one at the controls.
Watching a hurricane bear down on you, with the local weatherman on vacation.
All of those are scary scenarios. But they describe our current predicament to a “T”! And that helps explain the crazy volatility in the markets right now.
Look, we’ve had eight years of record-low interest rates. We’ve had more than five years of QE in multiple waves. We’ve had an incredibly long laundry list of “alphabet soup” programs (TAF, TALF, LTRO, and so on) in the U.S., Europe, and Japan, all designed to boost lending and bail out banks.
Going back as far as the immediate aftermath of the Great Recession, we’ve also seen massive amounts of stimulus spending on the fiscal side. The idea? Build a bunch of bridges to nowhere and THAT will save us all!
The bottom line? Our “genius” tinkerers in Washington, in Frankfurt, in Tokyo, and elsewhere around the world have thrown absolutely everything against the wall to see what sticks. And yet, despite all of that …
|Ghost cities are popping up across China.|
Global growth remains anemic … Japanese GDP is plunging … China’s real estate market is deflating rapidly … Europe is on the verge of a Triple Dip recession … European peripheral debt yields are blowing out (again) … and here in the U.S., the divergence between how the 1 percent-ers are doing versus everyone else has never been greater.
The bottom line? As this Bloomberg story notes:
“The problem is even with inflation now close to its recessionary lows by some measures, governments and central banks are almost out of ammunition, having exhausted it by swelling budget deficits and cutting interest rates in the aftermath of the financial crisis.”
That doesn’t mean the chowderheads at the Fed and elsewhere won’t occasionally go back to their bags of tricks and try to see if anything is left. In the midst of this morning’s stock market bloodbath, for instance, St. Louis Fed President James Bullard suggested the Fed could maybe put off the last QE tapering step past the October meeting. San Francisco Fed President John Williams said on Tuesday that the Fed could even consider QE4 at some point if the economy runs off the rails.
But let’s be honest. There’s a rapidly dwindling list of people on this great planet of ours who think that will accomplish anything. Heck, we have a half-decade of PROOF that QE and low rates are ineffective when it comes to stimulating real growth.
So when I talk about a potential “October Surprise” for the markets, here’s one major thing to consider: Central bankers launch QE in Europe … delay its end in the U.S. … or re-launch/increase it in Japan or the U.S. — and the markets tank anyway!
Why would that happen? How about the fact the Fed has spent more than a year preparing the markets for the end of QE and the first few interest rate hikes? They’ve been making speech after speech, taking step after step in that direction.
But now, just because of a 1,000-point decline in the Dow (give or take), they’re going to panic and change tacks in a few days? Really? Can you think of a bigger confidence killer — and a bigger sign for the rest of us to join the Fed and panic too? Because I have a hard time doing so.
|“There’s nobody flying the plane or manning the roller coaster controls anymore.”|
Bottom line: The volatility we’re seeing doesn’t just stem from Ebola headlines. It’s not just because of terrorist attacks in the Middle East, or saber rattling by Vladimir Putin. It’s because there’s nobody flying the plane or manning the roller coaster controls anymore.
Government officials and central bankers have tried everything and it didn’t work. Plus, they’re actively killing confidence by changing their forecasts and policy approaches based on every three-digit swing in the Dow.
So I can’t reiterate it enough: Take some profits off the table, cut some losers, avoid economies and currencies where central bankers are the most out of control, and consider hedging against downside market risk.
You have my take on what’s going on out there. Now I want to hear yours right here.
Specifically, do you think policymakers are out of bullets? Is there some “bazooka” left to fire? What would that even mean for markets — markets that are facing several challenges beyond the control of monetary or fiscal policy? Will this wild volatility be with us for much longer, and if so, how should you combat it?
|Our Readers Speak|
With the markets all over the map, it’s no surprise that opinions on what’s coming next are all over the map as well!
At the website, for instance, Reader John commented on the stock market and his positioning by saying: “I bought TZA a couple of weeks ago as insurance. So far, it’s been a very good play. I’ve been adding to it as the Dow has been going down a slippery slope. This Dow correction is long overdue and is healthy unless it drops below 15,000.”
TZA is the Direxion Daily Small Cap Bear 3X Shares (TZA), a 3X leveraged, inverse ETF targeting smaller capitalization stocks. So clearly John is bearish on the markets.
But Reader Mel W. is on the other end of the spectrum, expecting a strong rally to commence — and soon! His comments:
“My bet is we are close to a market bottom. With projected 2 percent growth in the coming six or eight months (not exceptional, but better), I look for a 15 percent to 20 percent market increase in the next six months. I think it wise to hold good solid stocks. If I’m wrong, I’ll go down with the other bulls. But I will not sell the best stocks I hold for the long term, and that includes oil.”
I’ve tried to provide the clearest guidance I can here, and specific steps to take in my Safe Money Report. Specifically, we pared down several positions in recent weeks, maintained a healthy level of cash, and otherwise took steps that should help our investors ride these volatile markets out in the best shape possible.
Finally, Reader Joan weighed in on master limited partnerships in the wake of my column on oil. She said: “As I remember you have been positive for some time on MLP’s. Most have been hit hard lately with decline in crude. What say you?”
Thanks for the question, Joan. There has been an incredible amount of volatility in these normally placid investments. Just look at something like the Alerian MLP ETF (AMLP). It dropped from around $18.75 down to almost $16.60, then surged all the way back up to $18.40 — all in the span of a week!
Certainly a prolonged period of crashing energy prices could jeopardize a handful of these companies. But many of them make money from shipping, storing and transporting oil, gas and gas liquids NOT producing them. So it really shouldn’t matter if oil is $70 a barrel or $150 a barrel — it still needs to be brought to market for refining or sale.
So as long-term investments, I still think MLPs make a lot of sense in a low-yield world — certainly much more sense than alternatives like junk bonds!
If you haven’t already joined the discussion in these volatile times, don’t hold back! Add your comments online here.
|Other Developments of the Day|
More Ebola news hits the transom every hour or two. The latest is that the second nurse, Amber Vinson, who treated the original Dallas carrier patient, Thomas Eric Duncan, flew back and forth to Cleveland, despite having a low-grade fever. The Centers for Disease Control actually approved the trip, too, if you can believe that!
Now I don’t want to be a crazy fear-mongerer or anything. But these missteps have to stop and the CDC needs to get ahead of this thing soon. In the meantime, a handful of schools are closing since their students were on the same Frontier Airlines flight or airplane as Vinson.
The economic data we got today for the U.S. was actually pretty good. Initial jobless claims plunged to 264,000 in the most recent week from 287,000 the week before.
That was far better than economists were expecting, and the lowest level going all the way back to April 2000! Industrial production was also healthy — up 1 percent in September. Economists were forecasting a rise of just 0.5 percent. The question, again, is “Will the anchor economies overseas drag us down … or will we drag them up?”
Don’t worry folks! The International Monetary Fund (IMF) has the solution to everything that ails the world economy: Borrow hundreds of billions of dollars to build bridges, roads, airports, and other forms of infrastructure!
Now I have no problem with spending prudent amounts of money to fix our nation’s ailing transportation arteries. But is that really going to work long term and “fix” the economy?
Didn’t we borrow and spend more than $800 billion for “shovel ready” projects here in the U.S. in the wake of the Great Recession … and basically get nothing (long-term) to show for it? But don’t think that will stop advocates like former Treasury Secretary Larry Summers from writing op-eds and giving speeches in favor of this plan.
Until next time,
P.S. In Martin’s FREE Ultimate Retirement Course he can help you claim thousands of dollars of “free money” — money you will control — that you can instantly begin using to grow the size of your nest egg or to live richer in retirement. He will also give you ten easy-to-follow steps that will not only protect you but also instantly explode the size of your nest egg or income. Click here to register while there is still time!