Which indicators keep telling me again and again that we’re in an entirely different environment than we were from 2009 through 2015?
Why do I keep saying that market risk and volatility should rise further, and that central banks are losing control?
Today, the yen went bonkers. It took out the recent spike highs from February and March, rallying to a 17-month high against the greenback before taking a breather.
This happened despite even more rumblings and leaks from the Bank of Japan today that it might try further easing to stem the yen rally. Those efforts would follow by mere weeks a round of previous steps that utterly failed to cap the yen’s momentum — a growing sign of central bank impotence overseas.
|Red flags over the global economy.|
Next up is the interest-rate market. It isn’t cooperating with the stock market, or central bankers, at all. Bond prices have been rising nonstop since mid-March, while the yield curve is pancaking flatter again.
Earlier today, the yield on the 10-year government note in Germany gave up all of its recent gains — then took out the low from February’s market panic. At just 9 basis points, or 0.09%, it’s within a whisker of the all-time low set back in April 2015.
These aren’t the kinds of market moves that “should” happen if investors actually believed the latest central bank hocus-pocus would result in stronger growth, rising inflation, and a surge to new highs in risk-taking. So I’ll chalk it up as another repudiation of the reflation efforts of central banks worldwide.
[Read More – The Consequences of Reckless Lending – Mike Larson]
|“Speaking of Europe, have you seen the trading in European bank stocks? They’re all heading back into the abyss.”|
Speaking of Europe, have you seen the trading in European bank stocks? The same ones that led the last leg down in global markets amid fears of surging credit risk?
They’re all heading back into the abyss, with German mega-giant Deutsche Bank (DB) now just a buck and change away from its February lows. You’ll see similar lousy action in Banco Santander (SAN), UBS Group (UBS), or a host of other European names.
Heck, shares of global giant HSBC Holdings (HSBC) actually took out its February level this morning. With the exception of a brief period during the 2008-2009 credit crisis, HSBC hasn’t been this cheap since the last century (1996, to be precise).
I can’t tell you exactly how every 100-point swing in the Dow will play out. But I can tell you that these (and other) indicators have consistently warned since last summer that things aren’t as rosy behind the scenes as they may appear at first glance. They’ve continued to point to a major turn in the credit cycle, and to the lack of staying power in multiple stock market rallies over the past several quarters.
So keep an eye on all of the indicators, and my commentaries here in Money and Markets. We’re living in volatile times, and I’m going to keep doing my best to help you sail through them as smoothly as possible.
Now, let me hear what you have to say. Are the latest moves in the yen, interest rates, or European bank stocks important to you? Or are you paying attention to other indicators? What do you think are some of the primary driving forces behind stock market moves now, if not those?
Is the auto industry in trouble? What will that mean for banks and independent lenders stuffed to the brim with auto paper? Several of you jumped into that debate overnight.
Reader Dirk said: “Yes, car manufacturers and dealers will have a bad time. But the ones which will absolutely get hammered are the financial companies who provide loans to subprime borrowers who will default. Any suggestions for shorting (or put options)?
Reader Howard added: “Bad loans will force a credit crunch by the banks and rebound throughout the economy. It’s why I have lost confidence in our broader market. When there are no more policy moves left other than to play the hand we are dealt, then it’s time to look for safety.”
Reader Timothy A. shared some on-the-ground intel, saying: “I live in the back yard of the headquarters for General Motors (GM), Ford Motor (F), and Chrysler (FCAU), Auburn Hills, Michigan. I have been noticing for months now, large areas of storage for new cars stacking up. Dealerships are also renting off site locations to park their vehicles.
“I would guess they are not selling as fast as they are taking delivery. I would also guess the housing market is going to be right behind them before long. I hope I am wrong, because I make my living building commercial buildings.”
For his part, Reader Frebon said auto-sector problems will make a struggling economy even worse: “Now that the Fed has admitted they cannot help much in the event of a recession, what is going to create demand? How do you get money into the hands of people who will spend it instead of just buying back stock, increasing dividends, increasing their Tier 1s, and investing overseas and taking jobs with them?
“Our economic policies have eroded the middle class to the point where the rich have everything they need and don’t have to buy anything, and the poor are subsidized by the government. This is a surefire road to financial chaos.”
Lastly, Reader Thomas M. said: “Hope springs eternal, but reality dictates the future. The consumer economy is in trouble. This translates in many ways, all of which are occurring now.”
I really appreciate the insights and comments. I believe the auto woes will likely have a significant impact on the broader economy and stock market. In fact, I have recommended select investments designed to help profit from auto-sector problems in my Safe Money Report service. It wouldn’t be fair to my paying subscribers to share those recommendations here, but feel free to click the link if you’re interested.
Any other comments I haven’t covered yet? Then be sure to share them below.
The Treasury Department just lowered the boom on companies seeking to move their domiciles overseas just to shortchange Uncle Sam. Specifically, it proposed new rules related to non-U.S. shareholder ownership thresholds and to so-called “earnings stripping” designed to increase deductions on interest payments, among others.
The move destroyed shares of pharmaceutical giant Allergan (AGN), sending them down 15% on the day. That’s because AGN was planning a massive $160 billion merger with Pfizer (PFE), one that was heavily dependent on the old tax rules for its success.
Walt Disney Co.’s (DIS) CEO succession plan is going to need a rewrite. That’s because heir apparent Tom Staggs just announced he will leave the company. Staggs was the entertainment giant’s COO, and he is leaving because the board of directors apparently couldn’t assure him he would be the next executive. Current Disney CEO Bob Iger earlier has indicated he would retire by June 2018.
I’m no basketball fan. But Villanova’s at-the-buzzer victory over North Carolina in the NCAA Championship game was one heck of a finish. The move gave Villanova its first national title since 1985. And for you baseball fans, enjoy the fact the 2016 MLB season is now underway!
What do you think of the Treasury’s new “tax inversion” rules? Will it be yet another huge problem for a drug industry that’s already under fire for unconscionable price hikes and underinvesting in R&D? How about Disney? Would you buy or sell the stock in light of the news on the CEO front? Any thoughts on last night’s basketball shocker … or for that matter, the start of another baseball season? Hit up the discussion section and weigh in with your comments or predictions.
Until next time,