WASHINGTON, Sept. 18, 2015 – Friday’s trading action was, alas, about what we expected after Thursday’s sharp and violent market reversal following news of the Federal Reserve’s latest non-event. The Dow closed down nearly 300 points, and the other averages looked just as bad. But, whereas up to now, whenever the Fed backed off its stated intent to start raising interest rates, markets rallied hard, Thursday’s action was different.
After maintaining a relatively positive tone Thursday morning in anticipation of the Fed maintaining a “stand pat” position with regard to interest rates, markets started racking up points on the plus side. After the 2 p.m. announcement, after another brief tick to the plus side, markets started to tank.
After briefly recovering once or twice, stocks then blasted into a violent, waterfall close, a classic one-day “reversal” pattern, indicating the HFTs and big money traders—who, as always, had gleaned the content of the Fed’s report second, if not hours before it was released to you and the Maven—whipsawed remaining bulls into a brief buying frenzy and then cut them off at the knees with a massive wave of selling.
This was a premeditated evil as well. Today, Friday, as these predators well knew, was “quadruple witching day,” meaning that, essentially, all manner of options were expiring today. Yesterday’s down-blast, followed through this morning, ensured that option holders were called and put to a fare-thee-well by Wall Street’s professional predators. They use proprietary programs to “hunt” down option holders whose stocks can either be bought cheap (“called” at a lower price) or who can have losing stocks “put” to them at a higher price, all for fun and profit. For the big boys, though, not for you and me.
We’d get into the mechanics of how this works, but we’d likely lose our audience in the process. Suffice it to say that options are picked off every month after the market is manipulated to hit their strike prices and stocks are either taken away or dumped upon unsuspecting small investors at terrible prices. There’s simply no defense for this, as for you and me, our positions are always on public display to the predators (without names attached, of course), while we don’t have the computer power to see theirs.
Our brokerage actually has an option whereby we can “hide” our positions, including longstanding (“good ‘til canceled”) orders, just like the professional thieves do. Unfortunately, the usually good habit of pre-establishing exit points, known as “stop orders,” tends to get one trapped in a market as volatile as this one.
As we said, no really good options here when the thieves are running the show, which the SEC allows them to do with impunity.
Today’s trading tips
Well, it’s a bit late today for tips, given that the market has once again arrived at a miserable close. But we’re on it. We’re lining up for a propitious moment next week to further reduce our portfolios while adding back in positions in the REITs we were forced to exit in July and August. Given that the Fed has chickened out on the interest rate thing, at least until December, REITs are likely to recover at least some of their losses while remaining relatively stable in a continued—yet now counterproductive—low interest rate environment.
Our banks got hosed today, but we’ll hold them until they stop going down and then double up. We don’t usually do this. But sooner or later, the Fed will bite the bullet (they’ll have to, as zero interest rates for the rich are clearly no longer working) and start raising rates, instantly energizing the banks that, ironically, need that incentive to start lending money once again to the likes of you and me—something that they (and Dodd-Frank) have been steadfastly resisting since, oh, around 2008.
We know about this, because we failed for a third time last week to refinance a pair of our rental properties at a lower rate through the government’s much-ballyhooed “home affordable” (HARP) re-fi program, which is available, apparently, only to the wealthy. This despite having never missed a mortgage payment, ever. So it goes if you’re not a wealthy Democrat supporter in this country. We could go on, but you get the picture.
All of which is why we’re in such a mess. The little guy, the supposedly important “consumer,” can’t get a break. Ergo he or she can’t “consume.” Game, set and match.
This increasingly stupid and stupefying administration continues to tout an economic recovery that thus far has only been experienced by a small cadre of yacht owners who also maintain summer mansions in the Hamptons. The rest of us have been flat to down, as per the St. Louis Federal Reserve chart we’ve posted above, with a hat-tip to ZeroHedge for providing it. This chart proves what we all know to be true. You can only get a loan if you don’t need one.
For this reason, we’re steadily going more and more cash, picking up some REITs and continuing to hold a few term-preferred stocks—high-yielding stocks that will be “called” (redeemed) at full value within roughly five years or less, thus likely maintaining value as everything else flounders.
There are no good options any more. At least for now, we’re in a bear market until otherwise proven. The general tactic here is to lose as little money as possible while waiting for clear signs of the bull to reappear. Unless you are prepared to risk going massively short—which most smaller investors, including this one, are not—you try to take a few smaller lumps and retain most of your capital in cash or cash-like positions until it’s time to come back out of the foxhole once again.
Forget the market for now, and have a great weekend. We’ll be back to do battle on Monday. It won’t be pleasant, but why worry about it now?Click here for reuse options!
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