FULL-BODY TREMORS: 2008 All Over Again!
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
A Boiling Pot
Tuesday's market action showed us how nervous traders around the world really are.
Every word uttered by FED Chairman Powell, indeed, every Presidential tweet, makes millions of people bullish or bearish on the future.
Remember, in the end, it’s market noise, not fundamentals.
On Tuesday, the Dow Jones fell 3.1%. The S&P 500 lost 3.24% and the NASDAQ 3.8%. These are absurdly high, one-day crashes.
All three are, again, playing with their 200-DMA's, so bulls will have to buy the dip once more, if the bears are to succumb to the fundamentals.
Now, for the first time since 2008, investors are rewarded for holding cash. The 3-month Treasury yield, which is, essentially, the equivalent of holding cash, is returning 2.42% today, compared with the S&P 500’s lousy 1.9% dividend yield.
About a year ago, Wealth Research Group pointed out that when short-term bonds yield more than stocks, the end will be close.
Official inflation is hovering around 3%, so with bond yields just barely at these highs, and with stocks in turmoil, writing covered calls and selling puts (sophisticated options trading), which are an integral part of my toolkit, is again proving its importance.
The S&P 500 has risen or fallen by 1% or more during 20 trading sessions this quarter with 17 days to go.
Compare that to Q3, when there were no such days. These remarkable changes between low volatility and high volatility indicate that investors are paying far too much attention to the news cycle and not nearly enough to the fundamentals themselves.
2018 is an average year for the stock market, overall, not too bullish and not too bearish. It is nothing like 2008 on the one hand, nor like the crypto mania of 2017, on the other hand. This is the lesson to learn, looking ahead, that markets are susceptible to swings in the short-term, which mean little in the long run.
During the bear market we're heading into, the impact of dividends on our returns will be even more significant, since we wouldn't be able to rely on price appreciation, as we have been during the past decade.
I'm preparing the list of companies that will be the ones to buy during the next cycle.
The trending 10-yr bond yield might be going below its 200-DMA, in light of safe haven buying, so the likelihood that the Federal Reserve might need to halt rate hikes increases, in the meantime, is becoming more realistic.
If interest rates remain subdued, stocks will have their excuse to make their last hurrah.
This bull market is close to topping-off.
If the Federal Reserve keeps isolating itself from other regions of the world, regarding its policies, inflation will only intensify. China, of course, cannot afford a slowdown, so I expect their central bank to STIMULATE, which no one is talking about right now, but it could be the most important event of 2019, especially for commodities.
Huge year in front of us – count on it.