WASHINGTON, July 8, 2014 – Stocks were off sharply on pathetic volume yesterday, with market darlings like healthcare and oil stocks leading the charge down.
The good news: yesterday’s plunge relieved short term overbought conditions that predominated last week. The bad news: futures point to a wobbly opening bell this morning in spite of the near-traditional Tuesday relief rally.
Alcoa (AA) will unofficially launch Q2 “earnings season” after today’s close. Investors will be watching this important but somewhat diminished bellwether stock for clues on the rest of the stock universe as they prepare to report their numbers in the coming weeks.
The big question: were Q1’s generally tepid numbers due to the chaos of the polar vortex-winter, or will those poor numbers continue, meaning we’re really slipping back into recession?
We’ve long contended that between the creeping socialism and healthcare disasters of this administration, businesses large and small have remained paralyzed on making big employment decisions since, oh, 2008, so we’re worried that the original downturn may actually be persisting. So these numbers may tell us something. What, we don’t exactly know.
Traders—at least those not still out in the Hamptons—are nervously watching several additional exogenous news items this week, including the increasingly ugly “children’s crusade” stampede of sick and unaccompanied children streaming across the border, passively encouraged by a White House that’s apparently contemptuous even of the voters that gave this Chicago Gang a second term.
Also troublesome: Ukraine’s apparently easy victories over its Russian-supported separatist agitators. Is this a cover for a surprise Russian invasion? Or is it a cover for sneakier Putin moves like messing further with Europe’s and Ukraine’s gas supplies?
Adding to the list is the increasingly out-of-control Middle East where Syrian and Iran vie for control of Iraq and where “ISIS” vies for control of the whole mess, including, we now hear, a longing to re-establish its longed-for caliphate of murder in Spain.
Funny about that Al Qaeda offshoot ISIS. It’s alphabet soup reminds us of that ancient, pre-Islamic Egyptian goddess Isis, who was regarded to be the great friend of slaves, sinners, hard-working artisans, and the poor and disenfranchised in general. It’s sort of what ISIS claims it is, and they’ll kill you if you don’t agree.
Throwing the back-and-forth kiddie murders in Israel-Palestine into the mix, and you have lots of upsetting stuff that reminds the dwindling number of educated Americans of the potential for an Archduke Ferdinand moment in that part of the world and no wonder those traders not on holiday remain, for now, reluctant to kick the summer 2014 rally back into high gear.
Well, that’s today’s background news. So let’s move onto actual stocks, shall we?
We took a beating in our EFT-commodity experiment in CORN and WEAT, exiting for a minor loss from WEAT and a nastier one in CORN. We thought we had bottomed out here a week ago. But yesterday’s super-encouraging reports indicating the U.S. would be producing mass quantities of these grains, not to mention soybeans, by the end of the summer sent prices plummeting to lows not seen for a year.
When the Maven was actually trading for a 9-5 living back in the 1980s, he made a decision to never actually get involved in commodities. Still neophytes in the business, the Maven first worked under the Dean Witter banner in Alexandria, Virginia, where our two local commodities traders—a younger dude and an older dude—hung out in a special office in the back.
Interacting with these traders on a daily basis, the Maven learned that commodities traders—individual, retail, and commercial—are the true gunslingers of investing. Fortunes are bet, won and lost sometimes within seconds in this side of the business.
And at least twice during my tenure at that long-gone company, the younger trader and his accounts were wiped out completely by bad bets. The local manager and the company staked this poor, devastated guy to a couple months of advances to keep body and soul together while he rebuilt his book. And his sanity. The Maven never forgot the hollow, defeated look in his eyes each time and vowed to stay out of futures trading forever.
But last week’s CORN and WEAT bets were an attempt to see if one could play this game without that level of risk. The answer is a resounding “No!” These puppies are just as ruthless as the actual contracts they mimic, though you don’t have to play on margin or work with a large stake.
While many things on Wall Street have changed, though, futures trading never has. You can still get rich quick here, but the odds remain far greater that you’ll get poor even quicker. Even if these ETFs start rebounding today, we’ll likely stay away. You should, too, unless you have money to spare. But who does, these days?
On other fronts, we continue, reluctantly, to pare away very slowly at our REIT and preferred stock holdings, while our dwindling bond holdings continue to mature and melt away.
It’s clearer and clearer that, despite the fact we’ve had no recovery for the average citizen-worker since 2008, interest rates will start going up perhaps in the first or second quarter of 2015. As a result, you can literally feel the money melting away from these interest-rate sensitive investments, including utilities and telecoms, which also pay generally handsome dividends.
We hate to sell these things. But at the Maven’s advancing age, you can’t let the HFTs take capital gains away from you for the sake of an income stream, so you’re forced to go cash for a while or take refuge where the Fed seems to want you to go—into riskier stocks. But with the market toppy at least short term, that seems ill advised, given the headline risks we described above.
We are tiptoeing back into gold ETF SGOL—the Swiss bullion ETF we can trade commission-free with our broker. Those not at Schwab might consider IAU as a reasonable approximation, although the larger GLD is more often reported on. Silver (SIVR for us, but maybe SLV for you) beckons. But this stuff has been volatile lately, as per the usual, so you need to be careful here.
We’d also like to get back into PALL (palladium), which has been very good to us this year off and on, but we don’t want to chase it right now so we’re laying back.
Theory is that if any of the above events heat up, people might hide here in a storm. That used to be the way precious metals worked, but lately the correlation has broken down somewhat because these prices are likely being limited on the upside by government intervention in the markets.
We’re not quite sure where rotation is taking us next—perhaps retail, which has been inexplicably strong. But bad numbers this week could derail that move pronto.
Otherwise, we have a small, experimental position in Alcoa (AA), which will issue its usual, difficult-to-parse Q2 numbers after today’s close. Wish us luck. AA, even though it’s no longer in the Dow, is still regarded as the kick-off of earnings season, so expect P&L numbers to start rolling out quickly later this week, bringing another unpredictable influence to another unpredictable summer.