WASHINGTON. Given the depressing nastiness bedeviling stock and bond investors since Labor Day, Wednesday’s surprise, Fed-inspired monster rally was exhilarating. All sectors pretty much ended up winners at the 4 p.m. closing bell. Wednesday, the Dow Jones Industrials seemed back in winning form, closing up a colossal +600 points. But the very next day, bearish market bets resumed.
And, surprise! The MSM quickly informed us — without evidence — that Thursday’s bearishness was all President Trump’s fault. Because tariffs. Michael Cohen. Nancy Pelosi. Russia. Stormy Daniels.
Because all of the above.
Are these flimsy, unprovable reasons really why Mr Market chose to play Destruction Derby this fall?
The mainstream media and financial pundits: overpaid and lazy
According to the MSM, Thursday’s market drop was entirely due to a single news item, according to CNBC.
“White House trade policy advisor and China hawk Peter Navarro will be attending a crucial meeting between President Donald Trump and Chinese President Xi Jinping this week, a White House official confirmed to CNBC.”
It’s a tribute to the sheer laziness of today’s so-called journalists that other major outlets immiediately parroted this nonsense.
Truth: One unelected advisor showed up at a single meeting. In this otherwise electronically networked and connected world, one subordinate’s appearance does not move markets. But reporting that it does can still lead to an increase in bearish market bets. At least in part, that’s what we’ve seen over the past two trading days.
This is analagous to the (illegal) planting of negative rumors to torpedo a given stock. But nobody seems to care.
Fake news and bearish market bets
Navarro’s appearance on the G20 attendance list was merely another opportunity for the MSM to gin up fake news once again. It was all part of the 24/7 left-wing attack plan that was put in place ever since Trump won the GOP Presidential nomination in the summer of 2016.
As for the Navarro attendance at the G20 summit? Well, our coddled, overpaid and undereducated “journalists” just sat at the bar and phoned in this earth-shattering, “market moving news.” Another fresh load of bearish market bets ensued. It’s a travesty.
Six obvious issues, few of them even remarked upon, form the basis for this fall’s relentlessly bearish market bets. Here are the first three, along with our brief comments.
Up to approximately the end of August 2018, a considerable majority of investors and funds had amassed considerable profits in their portfolios. Having started out 2018 with a surprisingly deep, bearish move, stocks reached for the stratosphere with breathtaking speed.
Having been snookered by Mr. Market before, many investors started booking these profits in mid-to-late summer. By the time Labor Day had come and gone, the profit-taking – which, of course, involves selling stocks, not buying them – became so intense that it began to erode 2018’s earlier buying binge.
Year-end tax-loss selling
This predictable phenomenon – booking losses in broken stocks to get rid of those positions and offset at least some current capital gains taxes – used to intensify during the days after Christmas, as investors must book all current year losses prior to the last trading day of the year.
In recent years, the tax-loss selling has started earlier and earlier, with many investors wanting to get a jump on those who still waited until the end of the year to book those losses.
When the negative numbers started to intensify this year, post-Labor Day, this likely induced a substantial number of traders and investors – and particularly fund managers – to launch their tax-loss selling binge earlier and earlier. Tax losses are swell. To a point. But losing too much on your positions looks and feels stupid. So plenty of investors and funds bailed earlier than usual in 2018.
A batch of early, massive tax-loss sales on top of other real and fake market negatives can easily cause a change in sentiment. That’s what happened here, and it’s helped cause a substantial increase in bearish market bets.
Federal Reserve stupidity
Having dug themselves into a self-made hole, the Federal Reserve, currently led by Jerome Powell, tried, at least a bit, to start climbing out of it Wednesday. Powell indicated that maybe – likely after jacking rates up another notch this December – the Fed might sit back and take a look at America’s still essentially non-existent inflation rate and perhaps even ease off for a while.
A halt to these needless interest rate hikes would certainly be nice for the home-building industry. Beleaguered middle-class Americans might appreciate this as well. Despite the so-called “Home Affordable Act,” the latter have only recently been able to refinance the high mortgage burdens they’ve quietly (and resentfully) borne for over ten years now. We know this from first-hand experience.
On the verge actually being able to sell their homes at a profit, middle-class Americans are getting slapped down again. The villains: a Federal Reserve and a US government that did very little to help them in the government-caused debacle known as the Great Recession.
The jury’s out right now as to whether the Fed’s foolishly “academic” approach to restoring a “normal” economy ended up killing Trump’s new and hopeful “Morning in America.” But our judgment is, they’ve come damn close to doing just that. And for what?
Whatever the case, investors haven’t liked this Federal foolishness one bit. That’s making them dump stocks now rather than wait to see how this turns out. Looks like the bears might snuff out that longed-for (but thus far nonexistent) 2018 Santa Claus Rally.
For the sake of economy, we’ll save our discussion of our final three market-moving issues for our next article.
Next: More reasons why Wall Street’s bears are getting more aggressive.
— Headline image: Bear attacks car? Public domain image via US Department of Transportation.
Posted in Wikipedia entry on “road kill.”