Market Roundup Dow+619.07
to 16,285.51 S&P+72.90 to 1,940.51 NASDAQ+191.05 to 4,697.54 10-YR Yield+0.04 to 2.172% Gold-$15.30 to $1,123 Oil-$0.36 to $38.95
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.
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 service.
“Fundamental and technical indicators are showing that
policymakers are losing their potency.”
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.
Our Readers Speak
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.
Other Developments of the Day
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. Until next time, Mike Larson
Source: Money and Markets
Comments
So, Mike thinks the Dow could go to 12,500 to
provide a “buying frenzy”, but Larry thinks the Dow will reach 31,000 within 2
years. I think investors will keep the
market going up and down, so they can get the stocks they want at the prices
they want to pay. I hope governments cut
their spending and debt and get out of the way.
I hope central banks stop printing money to reverse the sovereign debt
death spiral.
Norb Leahy, Dunwoody GA Tea Party Leader
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