As I watch the financial game shows it seems obvious that they are trying to explain the market’s recent struggles with the “Trade Wars” narrative. While this may have some bearing on what is going on does it seem strange to anyone else that the markets here in the USA and indeed globally have been sputtering and falling since the Fed’s latest rate hike?
With the level of debt at all-time highs globally, higher rates, it appears to me, will be quite a drag on economic performance as more and more capital is allocated to debt service payments. These rate hikes may also cause many banks to see less profits because of a flattening yield curve.
It is also interesting that the “experts” have been saying to buy banks as rates rise- of course they also say to buy when the rates are falling so keep that in mind. The banks have seen their share prices falling hard- also since the last rate hike.
It appears that the “print” money and buy assets game is nearing a fork in the road. Keep “printing” higher and higher amounts and debts continue to dizzying heights or either stop or slow down and the “markets”, which have become addicted to cheap money and asset purchases, just may seize up and make 2008 look like a picnic. Time will tell.
The only thing I can say is that I would avoid any assets that are using leverage in any way at this time. Many people are holding assets that they may consider “safe”. As you all may know I consider nothing “safe”. However, there are many ETFs and mutual funds out there that are using leverage in funds that you would not likely expect. Make sure you look at the asset allocation in your funds. If there is a negative cash position that is a sign.
A few questions that I am asking myself right now:
Could the inversion in the corporate yield curve have anything to do with the stock markets struggles? Could the dismal production numbers from Europe and the USA which seem to suggest that the economy is already slowing down substantially have anything to do with the markets struggles?
I also have to wonder what it means that the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) continue to shoot higher, keeping the indexes propped up to a certain extent, while bank stocks have been pulling back substantially. The reason that this is important in my opinion is that the banks provide the liquidity necessary for virtually the entire economy. Trouble there could mean trouble everywhere.
As I write this on June 21 it appears that all assets are under pressure. Stocks, bonds, metals, etc.
What this may be saying is that there may be a little more going on under the surface that we may not be aware of yet. There could be some forced liquidations (hedge funds, banks?) taking place that we may find out about in the near future or it could just be that many are raising cash expecting better prices ahead- again time will tell.
In an article by Matt Egan of CNN Money :
“An analysis released Monday by SEC commissioner Robert Jackson, Jr. found that the percentage of insiders selling stock more than doubled immediately after buyback announcements.” “Right after the company tells the market that the stock is cheap,” Jackson said in a speech “executives overwhelmingly decide it’s time to sell”.
This is a bit of evidence for my belief that the lower corporate tax rates and repatriation of foreign money is not actually helping the economy but further enriching the few at the expense of the many as most of the recent laws seem to do. Longer term, this can also be a drag on future productivity and growth.
No wonder we need a few trillion (or more) globally to be “printed” to keep the illusion of demand going.
As I have said many times all traditional asset classes rose together from 2003-2008. In 2008-2009 they all fell together. The traditional asset allocation models were shown to be of little use at that time. This should have been a lesson learned as the same scenario has taken place (mainly via “printing” of “money” and buying assets this time) from 2010-2018. All traditional assets have risen together on a tidal wave of liquidity like the world has never seen before. It appears to me it will all fall again together at some point.
Some assets have already pulled back substantially- like most commodities and the companies that produce them. These assets may outperform others going forward because of a lower starting point.
Gold and silver- while taking part in the initial recovery- have been smashed down in the last few years with my opinion being that silver is possibly the most undervalued asset on the planet with gold not lagging far behind. The charts and reports from traders like Andrew McGuire and others show me how the price is being held back through sales of “paper” gold in amounts that are truly staggering on an almost daily basis. Look out when the prices of these assets are unleashed. It should be something to behold.
It has been a long time coming and many are probably asking “How can you be sure about this?”
While nothing is guaranteed I am extremely confident that the price will be unleashed at some point because the major buyers are: Central banks, Countries, Major banks like JP Morgan (whose founder- JP Morgan famously said “gold is money- everything else is credit”), Goldman Sachs, HSBC and many others.
I doubt countries are repatriating their gold and purchasing new gold if they expect the price to fall in the future. I doubt major banks are purchasing tons of gold in anticipation of lower prices. ALWAYS watch what they do- not what they say! 1
Mike Savage, ChFC, Financial Advisor
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1- Seeking Alpha 8-10-2015 Goldman Sachs and HSBC Buy 7.1 Tons of Physical gold