Weekly Article 12-28-2018
I hope that everyone was able to enjoy this holiday season regardless of the action in the stock and bond markets. It is apparent to me that there is some serious uneasiness beneath these markets as is evidenced by our Treasury Secretary taking time out of his Caribbean vacation to contact America’s largest banks to let them know that there was ample liquidity available. Of course, if there was no question then no one would need an answer.
While the stock market has been stabilized, as reported on Zerohedge by a $64 billion order by pension funds- and who knows what else, the high-yield bond market is still showing signs of stress as yields are spiking and redemptions are continuing. Don’t forget that, as trouble starts, it starts usually where the weakest links lie.
It is generally pretty easy for those “in charge” to move markets at this time of year as the trading volume is light. Less intervention is needed to get the desired result. It should be no surprise that we got a bit of a relief rally off of last week’s beatdown.
While many are cheering the 1000 point gain in the DOW on Wednesday I would keep in mind that this gain is the largest point gain in the history of the Dow in one day. The second largest was back in October of 2008. Does anyone remember what was going on then?
Anyone who thinks that the stock markets are now in a position where bargains abound I would take a good look around and see if it appears that there is clear sailing ahead or are more people going to be heading for the exits as the new year begins.
While we can’t put anything past those in charge- yes those of negative interest, “printing” trillions, “Missing trillions”, etc. we can see their ability to manipulate being dragged away by a lack of liquidity and a lack of funding-particularly at the periphery where many companies are having a hard time rolling over debt. Particularly high-yield debt.
I believe it is time to fasten our seatbelts and to be ready for some unprecedented volatility as the market tries to do its job- find a fair value for all prices and those in charge try to keep the illusion alive with their endless interventions to move the prices where they would like them to be. It should be a most interesting year!
I wish everyone a healthy, happy and prosperous New Year.
Mike Savage, ChFC, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
Securities are offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
Any opinions are those of Mike Savage and not necessarily those of RJFS or Raymond James. Expressions of opinions are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do n ot guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.
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High Yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit and liquidity risks than those graded BBB or above. They generally should be part of a diversified portfolio for sophisticated investors.
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