|Dow||+168.36 to 18,127.39|
|S&P 500||+18.80 to 2,108.07|
|Nasdaq||+34.04 to 5,026.42|
|10-YR Yield||-.047 to 1.93%|
|Gold||+$13 to $1,182|
|Crude Oil||+$1.76 to $45.72|
It’s easy to make money when you know where markets are headed. But when your crystal ball gets smashed, what do you do?
That’s what professional investors are wrestling with now, and nothing makes that more clear than the wild swings we’re seeing in everything from the currency to interest rate markets.
Look at this 1-minute chart of Euro currency futures. It shows a roughly 15-hour period, beginning shortly before the Federal Reserve news came out Wednesday and ending in the early morning hours on Thursday.
Currencies normally move in fractions of a cent over the course of a day, and the market for trading them is widely considered to be the most liquid in the world. But take a look at the huge euro spike we saw when the Fed news came out (circled in green).
Then look at what happened just after the stock market closed. The euro surged a cent and a half in mere seconds (yellow circle) to around 1.10 against the euro. Then several hours later, it plunged right back to where it began the whole wild ride (red circle).
As the Wall Street Journal recounts in a story today:
“It was like a zoo,” said Masafumi Takada, director of currency trading at BNP Paribas in New York. “Phones were ringing. Traders were struggling to fill orders. Sales traders were screaming and yelling for the fill.”
Overall volatility in currencies is now the highest in four years, according to a benchmark Deutsche Bank index, and it’s only going to get worse with the global currency war boiling over!
As for interest rates and bonds, more and more investment firms and regulators are sounding a liquidity alarm. They’re warning that with so many bonds Hoovered up by central banks, and Wall Street dealer inventories of bonds way down thanks to tighter regulations, it’s getting harder and harder to buy or sell large amounts of bonds at fair, easily quoted prices.
|“Consider getting more active — taking profits sooner when you have them, and cutting losses quickly when markets go the wrong way.”|
We’ve already seen one “Flash Crash” in Treasuries in October. That’s when bond futures prices soared more than five points in price, before subsequently tanking, all in a single day. Now there’s a very real concern that corporate bonds (and bond ETFs owned by retail accounts!) could plunge if investors start pulling out some of the tens of billions of dollars they’ve poured into that market in recent years.
Bottom line: We’ve seen several years where markets were on “auto pilot.” That stemmed from over-aggressive central banks that were all flooding the markets with money and all pulling in the same direction. Now it’s more of an “every man for himself” environment.
That means guidance from unbiased experts, who have decades of experience following these markets, has never been more crucial and valuable!
You’ll also want to consider getting more active — taking profits sooner when you have them, and cutting losses quickly when markets go the wrong way. And you’ll want to consider buying beaten-down, brutalized assets that have already had a ton of froth wrung out of them … while selling over-stretched, wildly overbought ones before they reverse on you!
What other thoughts do you have? Does this increased volatility worry you? Or does it make the markets that much more potentially profitable? What are you buying … and selling … in light of the crazy moves we’re seeing in currencies and bonds? Let me and your fellow investors know at the Money and Markets website.
|Our Readers Speak|
There are lots of great comments about the currency moves we’re seeing, as well as the economic and job market data we get every month. I can’t recap them all. That’s what the website is for. But here are a few that stood out:
Reader Bill S. said: “You summed it up very well by saying things are ‘somewhat better.’ Out here in the REAL world and away from the gazzillionaires that are around down there, things are getting better, but not great.
“Thankfully, the Fed is aware of what regular people are dealing with and they will not be rushing into anything. I do not see any interest rate hikes coming until they are fully satisfied that most everybody is participating. That might occur later this year, but don’t hold your breath.”
Reader Tom added: “The current administration over the past six years has spent like a drunken sailor, so I disagree that the employment numbers are real. The numbers are fabricated each month using part-time workers as full-time, and most small retailers have dropped most workers from full time to part-time. How does that show up in the unemployment rate?”
Finally, Reader Russ S. said: “These are indeed interesting times, especially when every currency dedicated to winning the currency war is a fiat, I Owe You Nothing, piece of un-backed paper with some ink spread around on it with NO precious metals backing whatsoever. It’s hard for me to believe that every country involved in the currency wars, in order to attempt to gain greater market share for their country’s products sold internationally, is willing to sell its goods for a currency which may end up with the same historical ending as the U.S. Continental dollar.”
As for the markets overall, he added a very interesting question for everyone to ponder:
“Can the ‘silly putty’ of QE continue to uphold the stock markets, mutual funds, corporate stocks, currency markets, Treasuries, derivatives, corporate bonds, pension funds, mortgage markets, deficits, etc., etc., etc. … or do we inherently gut feel this must all come crashing down after all the ‘silly putty’ is unavoidably removed whenever?”
That’s a great one to noodle about as we head into the weekend. Share your answers at the website when you get a chance. My view is that the markets are going to get much more interesting in the next year than they’ve been for the last six or seven, and that the increased volatility will open up tons of opportunities. So be sure you keep reading Money and Markets as I’ll do my best to highlight them!
|Other Developments of the Day|
Shoe and athletic apparel maker Nike (NKE, Weiss Ratings: B+) turned in yet another strong profit report last night. Earnings jumped 16 percent to $791 million, or 89 cents per share, in the quarter that ended February 28. Revenue climbed 7 percent to $7.46 billion, and future orders gained 11 percent. All of those figures topped estimates, sending the stock to a fresh high.
On the other hand, luxury jewelry retailer Tiffany & Co. (TIF, Weiss Ratings: C) got smacked by the stronger dollar. That reduces demand for its products from foreign tourists here, and cuts the value of sales it rings up overseas. Sales fell 1 percent in the quarter that ended January 31, and the company warned that profit would plunge 30 percent in the current quarter.
China joined the long list of countries whose central banks are manipulating the value of their currencies. But in this case, it was to drive the currency HIGHER. China is trying to eliminate hot-money outflows and one-way currency bets. Its market interventions — in which it bought yuan and sold dollars — caused the yuan to score its best week in seven years.
It’s officially spring! Now get outside and shovel those few inches of fresh snow. It’s been coming down in Washington, New York, and elsewhere in the Northeast. And if you happen to be reading this from Europe or the Faroe Islands a couple hundred miles off the Scottish coast, I hope you enjoyed the solar eclipse this morning!
Thoughts on these stories? Don’t be shy — share ’em over at the website!
Until next time,
P.S. Safe Money Report is a great place to get started when looking for unbiased investment advice. Click here if you’re ready to give it a try for just 13 cents a day!