Market RoundupDow-114.85 to 16,528.16S&P-16.69 to
1,972.18NASDAQ-51.82 to 4,776.5110-YR Yield+0.014 to 2.20%Gold+$0.80 to
$1,134.80Oil+$3.27 to $48.49
Darn the torpedoes – Full speed ahead! That was the message coming out of key
Federal Reserve officials at the just-completed confab in Jackson Hole,
Wyoming. From Fed Vice Chairman Stanley Fischer on down, policymakers generally
signaled they’re on track to raise short-term interest rates this year despite
market turmoil and Chinese economic concerns.
Fischer said in his keynote speech that “there is good
reason to believe inflation will move higher as the forces holding inflation
down – oil prices and import prices, particularly – dissipate further.” One
Fed-watcher said to Bloomberg in response: “It sounds to be as though in his
heart of hearts, he would like to tighten in September.”
Meanwhile, extreme “doves” like Minneapolis Fed President Narayana
Kocherlakota appear to be getting more marginalized. More Fed officials appear
to be adopting the view of Cleveland Fed President Loretta Mester, who just
said recent volatility “hasn’t so far changed my basic outlook that the U.S.
economy is solid and it could support an increase in interest rates.”
Stanley Fischer: “There is good reason to believe inflation
will move higher.”
Even foreign central bankers such as Bank of England
Governor Mark Carney sounded sanguine about potential turmoil. Per the Wall
Street Journal, he just said: “The dog that hasn’t barked in the wake of recent
market turbulence has been any hint of distress at a major financial
institution.”
The next Fed policy meeting is just over two weeks away, on
Sept. 16-17. While many on Wall Street have been hoping the Fed will stay its
hand, the recent comments out of Wyoming suggest an increase is very much on
the table.
There are only two more meetings in 2015 after it, on Oct.
27-28 and Dec. 15-16. So if policymakers truly want to move this year, they’re
running out of time.
My best advice is to not get overly hung up on exactly when
the Fed will move. Instead, understand that the long, long, LONG period of
massive QE, zero-interest-rate policy and “autopilot” behavior in markets is
over. We’re entering a whole new policy regime, one that will usher in more
uncertainty, more volatility, and more market instability.
That’s why I’ve been recommending you pare down exposure by
cutting losers and grabbing gains more aggressively. It’s also why I believe
the extreme swings we saw last week may be just a taste of what’s to come this
fall and beyond. So buckle up!
What do you think? Is a September rate hike truly on the
table? Or do you think we won’t get a move until December … or later? What are
the implications for stocks, bonds, and currencies? Are you rejiggering your
portfolio to account for a new interest rate regime? Hit up the Money and
Markets website and weigh in when you get a minute.
Our Readers Speak
Buy stocks? Sell stocks? Have a bunker ready in case the
worst hits? Or just stop worrying? Several of you shared your opinions in
recent days on which of these strategies makes sense in light of increasing
market volatility.
Reader H.C.B. said: “I never fully accepted this ‘recovery’
to be authentic — to be a true bull market in its own right, as was the case
from 1981-2000. This obviously is not a new bull market. So, I never went ‘all
in.’
“The FED cannot force me to consume things I don’t need or
want or invest at high valuations, no matter what. Only I decide what is best
for me. So, I never fully accepted this as a real bull market as such, even in
light of so much cheer-leading by the financial media and most stockbrokers.”
Reader John E. added: “I am done with individual stocks for
the short term. A little gain is not worth the downside risk. I am in negative
territory for the year. I have sold off 80% of my mutual funds and it is now in
cash.
“The economy is sick and the market is volatile. Only an
idiot or someone on the inside would be in right now.”
Lastly, Reader Jane W. said: “Our economy isn’t moving
forward because there are so, so, so many regulations that companies, farmers,
etc. have to meet that they feel going forward isn’t worth the time or money.
Also there are no pipelines being placed, no coal mines working, limits on the
amount of carbon that can be released into the air…. it just goes on and on.”
But Reader Mike S. took a more sanguine view, saying: “For
all the wailing and gnashing of teeth, I’m long, long term and have been since
March 9, 2007. Where the SPY is before the close on the first trading day of
September will decide whether or not I go to Money Markets and inverse funds
long term.”
Reader Hans also said: “Investors are overreacting. People
still need paper products, gas, insurance, food, etc., which is produced by
companies that are fundamentally strong, that is as simple as that. Keeping
things in perspective seems to be hard to do these days.”
And finally, Reader Tom said: “Of course you shouldn’t sell
stocks. Do you think Warren Buffett is panicked? No, he’s buying up stocks (and
holding them for the long run). When the Dow hovers between 19,000 and 20,000
by year’s end, you’ll be sorry if you sell stocks.”
So as you can see, it’s a pretty even split on the website
between bulls and bears. That seems to be the general split on Wall Street as
well, given the very sharp break and the quick, decisive bounce that followed.
Me? I’m not complacent or encouraged by this action at all.
This kind of tremendous volatility and these types of sizable technical breaks
often occur at major market turning points.
So I’m carefully analyzing every bit of incoming data to see
if we are, in fact, seeing a return to bear market territory. And in the
meantime, I’ve been taking several steps for months to prepare my Safe Money
Report subscribers for today’s much more challenging market.
Other Developments of the Day
The U.S. Federal Reserve isn’t the only central bank whose
policies have failed to spark a vigorous economic recovery and higher
inflation. The European Central Bank has been failing as well, with consumer
price growth lagging behind the ECB’s 2% target for two years.
Prices rose just 0.2% in August, and is on track to rise by
only 0.3% for the full year. That’s leading to speculation the ECB could boost
or accelerate its QE program before long; its next meeting is this Thursday.
Oil refiners have been one of the few bright spots in the
energy sector, and Warren Buffett is taking notice. The billionaire investor’s
Berkshire Hathaway has snapped up roughly 58 million shares of Phillips 66
(PSX) – a stake valued at around $4.5 billion.
Don’t criticize stocks in China – you might go to jail.
That’s because China is detaining and harassing “malicious” rumor-mongerers for
daring to say the stock market is dangerous. Almost 200 people were rounded up
in a crackdown by Chinese officials tied to the recent market meltdown.
So what do you think of Buffett’s most recent move? Or the
Chinese crackdown on stocks? And are you expecting central bankers to succeed
or fail at boosting inflation? Let me know at the website. Until next time, Mike
Larson
Source: Money and Markets
Comments
In the 1981 – 2000 Bull Market, we were all in
fixed investments while interest rates were 10-13%. After that, we went to energy stocks. Jobs
were everywhere, because of the PC. In
1993, with NAFTA, we started to off-shore manufacturing operations, jobs
disappeared and stocks went up.
The split seems to be about whether we will
hang around 16,500 on the Dow or go down further. When the music stops, you need to have a
chair to land on. Stock traders may use the Fed interest rate hike to call for
another 1000 point drop. The Fed hike might be a convenient scape goat event,
but it would not be the reason for the sell-off. The slowing of the global economy would be
the real boat anchor for further declines.
“Pay no attention to the man behind the Curtin” – The Wizard of Oz
If the Fed hike ripples to mortgages, that
would contribute to the decline, because that ¼ point would be subtracted from
disposable income. If large traders want another dip, it will happen. Stock
futures are down 300 points as of 9/1/15.
Norb Leahy, Dunwoody GA Tea Party Leader
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