But something extraordinary happened overnight. Iron ore futures prices exploded 21% on the Singapore Exchange, the biggest one-day rise in history. Similar explosions took place in Chinese metals markets, with one analyst in Shenzhen telling Bloomberg the “iron ore and steel markets have gone berserk.”
But even that crazy move pales into comparison to some of the moves I’m seeing in some of the lousiest, riskiest publicly traded companies in the entire market. Take SeaDrill Ltd (SDRL), a Norwegian offshore drilling firm that also trades on U.S. markets.
|Panic buying: A bad sign for the markets?|
The collapse in offshore drilling activity and pricing has absolutely crushed the stock in the last few years, as have concerns about the threat of bankruptcy given its high debt load. In the two years through early last week, SDRL plunged to less than $2 from the mid-$30s.
But on Friday, the stock went ballistic. Its U.S. shares soared by almost 200% at one point on volume of around 148 million. That’s more than 13 times the stock’s average turnover, and by far the biggest rally in the company’s almost-11-year history of trading in the States. Several other two-bit, nearly bankrupt energy and commodity firms that I track doubled or tripled in a matter of a couple days, or even hours, late last week.
Take Linn Energy LLC (LINE). Citi Research just cut its rating to “sell” on the stock, and lowered its price target to … believe it or not … ZERO dollars. The firm also just said it’s exploring “strategic alternatives related to its capital structure,” which is often corporate speak for “We may need to file for bankruptcy.” And to top it all off, Linn just said it couldn’t file its 10-K annual report because it needed extra time to prepare its statements and disclosures.
But, lo and behold, its shares are en fuego — almost doubling in price today alone! You could’ve bought this nearly broke turkey for 40 cents last Wednesday … then sold it for just over $2 this morning. That’s a five-bagger … more than you can get on a lot of bets in Vegas.”
Heck, the InterContinental Exchange just reported that long positions in the Brent crude oil market hit an all-time record last week. This is literally only a few weeks from when oil was trading in the mid-$20s, and investors and analysts were falling all over themselves to predict a drop into the teens.
Bottom line: From iron ore to oil to everything in between, we’ve gone from panic selling to panic buying. From desperation to euphoria. From madness to madness.
|“From desperation to euphoria. From madness to madness.”|
Some may call me old-fashioned. But I don’t find that kind of market action healthy at all. I think it just shows how sick this market has become. It speaks to an underlying level of volatility and risk that we didn’t face from 2009 through 2015 … but that I believe we’re going to be coping with throughout 2016 and 2017. So be sure you’re prepared for that.
Hold higher levels of cash. Stick with safer, higher-yielding, stable stocks in non-economically sensitive sectors. And consider trading more actively for a portion of your capital. Buy long positions on big selloffs and dump them on big rallies … or alternatively, get “short” on rallies and grab gains on those short positions when the inevitable selloffs follow. Doing so should help you stay one step ahead of the incredible volatility and manic-depressive behavior we’re seeing in markets.
That’s my take, at least. What’s yours? Why do you think markets are swinging so wildly from depression to euphoria, and what are you doing about it in your own portfolio? Are there sectors or stocks you’re turning to for safety and stability here? Hit up the comment section and let me know.
Friday’s employment report offered something for everyone on Wall Street. But here on this website, several of you zeroed in on the problem of underemployment and lackluster wage growth.
Reader Joe said: “I’ve been out of steady, good-paying work for over one year. I’m presently underemployed and cannot get more than 32 hours per week. Some of these numbers support my situation. The overall picture seems to ignore the fact that nearly 40% of the total workforce is in my situation.”
Reader Ted F. also noted the fact many jobs today are at the lower end of the wage spectrum. His take: “There are lots of companies advertising jobs in all kind of places, like the supermarket at the bottom of my receipt, the home improvement store, etc. You’re looking at starting at 20 hours a week at, being generous, up to a dollar above minimum wage. The jobs report doesn’t tell us the type of wages and hours, just the job numbers.”
Reader Chuck B. also picked up on that theme, saying: “Something I notice about the employment figures: More layoffs in generally high-paying mining and manufacturing. Hiring in service fields, which often do not pay as well. Health care is an exception, of course. So are the skilled construction jobs. But they are playing catch-up, after some slow years. Laborers don’t get so much, nor do many retail people.”
Finally, Reader Dan said: “As a retiree, it makes my blood boil when I hear these administration mouthpieces wax rosy and optimistic about the current economy they are so proud of ruining. Very few young people will ever have the pay and benefits I had, much less the fixed-income pension we live on.
“It breaks my heart to see intelligent young people struggling to survive on low-wage, less-than-full-time hours, because current government policy is anti-productive, anti- business, anti-capital-accumulation, you name it.”
Thank you for weighing in. The job market is clearly on everyone’s mind, because acceleration or deceleration in job growth will impact so many different market sectors. I personally believe that with the credit and economic cycle turning, we’re likely to see more fraying around the edges in employment and wage trends. But only time will tell.
Didn’t get a chance to comment yet? Don’t worry – you still have time to let me know your thoughts here in the discussion section.
In January and early February, money fled higher-risk bonds, initial public offerings, and other riskier investments. The bounce since mid-February has enticed some of those dollars back in. We’ve seen a few IPOs and bond sales in the past few days, while high-yield funds just attracted a record amount of money in inflows.
Is this just a flash in the pan, one likely to be followed by renewed selling in the weeks and months ahead? That’s what my work suggests, considering how credit-cycle turns historically play out over a longer period of time. Or in other words, I wouldn’t chase this move.
The Bank for International Settlements (BIS) is often called the “central bank to central banks,” and the Swiss organization just warned that negative interest rates are likely to backfire because they cause unintended consequences. The European Central Bank (ECB) is likely to respond this week … by cutting rates further into negative territory! You can’t make this stuff up folks.
Chinese foreign exchange reserves declined yet again in February, dropping $28.6 billion to $3.2 trillion. That left reserves at the lowest level since 2011, but the pace of deterioration slowed from the prior three months.
Former first lady Nancy Reagan passed away Sunday at the age of 94 of congestive heart failure. Her husband, the 40th president Ronald Reagan, died in 2007.
So what do you think about the fresh warning on negative interest rates? The deterioration in Chinese reserves? How about the wild swings in market sentiment, and the resulting action in IPOs, junk bonds, and the like? Let me hear your thoughts on these or other topics in the comment section below.
Until next time,
P.S. It’s a great thing that Kathy Lien records her phone calls!
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This urgent call begins with Boris saying “I think we’ve been fooling ourselves about China and Europe …”
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