WASHINGTON, October 11, 2014 – Like most investors, the Maven’s portfolio got hammered hard Thursday as massive, machine-driven sellers trampolined off negative headlines to mercilessly batter nearly the entire stock market with its worst one-day pounding in 2014.
Trading lately has been like playing the roulette wheels in Vegas on those days when you feel like the house is completely rigged against you. It’s like “Wheel of Misfortune,” with apologies to Pat Sajak and Vanna White.
The Maven used to lecture individuals who characterized investing as “playing the market.” Today, it would seem, the Maven stands corrected. Wall Street today seems to be a tossup between spinning the roulette wheel or engaging in a friendly round of craps, even when you’re convinced that the dice are loaded. It’s “capitalism” at its finest as one writer recently pointed out.
The few stocks that escaped the second and worst stock massacre this week were largely defensive issues in consumer staples and utilities as well as some recently kneecapped REITs. Government bonds also had a nice day, as investors are back shopping for yield and low-volatility, whatever the Fed’s eventual interest rate threat.
This morning’s action followed through on Thursday’s disaster, with stocks again down across the board, except for those few groups just cited. This morning’s trigger (not to be confused with those politically correct “triggers”) seems to have been respected semiconductor company Microchip Technology’s (MCHP’s) lowered sales outlook for the quarters ahead.
MCHP’s negative assessment meant more to traders than it might have seemed to the casual onlooker. Most people are still not fully aware of how ubiquitous chips have become in so many consumer products over the past decade or two. Not just for computers and PCs any more, chips are (obviously) a key part of mobile communications devices, automobiles, security systems, and a wide range of products spanning the gamut from refrigerators and microwave ovens to toasters and toys.
Ergo, when a major purveyor of product-specific chips like Microchip expresses nervousness over the next quarter or three, you can bet that the manufacturers buying their chips are revising orders down and possibly expecting—oh-oh—a recession. (Cue the spooky Halloween music.)
That news, along with the rising Ebola panic, leftist-organized riots in St. Louis, the Long March of ISIS through the Middle East—opposed only by America’s secret COO Valerie Jarrett’s successful efforts to keep the Duffer-in-Chief from doing anything useful to oppose them—plus, whatever else you can think of, like maybe the Obamacare price hikes that are largely being kept secret until after the low-information voters do their thing in November, and we have enough headlines to keep those nefarious HFTs hammering and shorting the markets through at least Christmas. Disgusting, but there you have it.
Also keeping markets roiled is the Cone of Silence around that sudden GTAT bankruptcy filing. Apparently, GTAT’s agreement with Apple (AAPL) prohibits it from allowing the bankruptcy court to shed any sunshine at all as to why, exactly, GTAT’s treasury kitty tanked after its promising sapphire glass arrangements with those crafty Cupertino kids.
If the CIA were as good at keeping international secrets as Apple is about its corporate agreements, we’d already have fried those Russian and Chinese computer and data hackers years ago.
Clearly, Apple made some arrangement with GTAT that was so advantageous to themselves that the smaller company was almost bound to mismanage expectations, particularly in the actual manufacture of rigorously specified sapphire glass—something they’d never really done before. Prior to the Apple agreement, GTAT had primarily made its money by manufacturing and selling synthetic sapphire-specific furnaces to other manufacturers—not by doing the work itself. That could be one wrinkle here.
Writing for the useful but uneven “Seeking Alpha” website, Bret Jensen picks it up from here:
Analysts and industry insiders, however, attribute GT Advanced’s apparent cash-flow problems to the unfavorable terms of a deal with Apple that involved building an expensive Arizona factory to make scratch-resistant sapphire glass exclusively for the Cupertino, Calif.-based company, but which Apple was under no obligation to buy.
An additional wrinkle could involve the tendency of young companies and startups that have yet to turn a profit to grossly overcompensate their corporate officers when that vulture capitalist and IPO money starts rolling in. Whatever happened to those days when you had to actually earn you outrageous CEO, COO and CFO salaries before your company and its vulture capitalist investors paid you accordingly for your proven success?
A lot of new tech CEOs behave like spoiled brats who’ve just won an all-expenses-paid trip to Candyland, gorging themselves on the merchandise until they can no longer see their feet. While not quite as young or outrageous as, say, Facebook’s (FB’s) Little Markie Zuckerberg, GTAT’s top dogs have been living the good life, too.
In any event, the Apple-GTAT mystery, the Microchip warning, and everything else—not to mention the Eurozone’s insane dithering, which makes Senate Majority Leader Harry Reid’s “The buck stops here and never moves” approach look like radical activism—are helping to make this a miserable investing environment.
We are frankly glad the bloody Columbus Day holiday weekend is here, although even this holiday has been under constant attack by leftist revisionists who likely want to rename it “Illegal Alien Revenge Day.” Next thing you know, Thanksgiving Day will be re-named “Native American Genocide Day,” which we’ll celebrate with an annual round of repatriations and no turkeys except for the politicians who redistribute the money.
But we’re digressing here. The market is lousy, will likely be alternating upside violence with downside violence until it stops, or until the volatility indicator known as “the VIX” settles down from its rapidly elevating levels. So what do we do? Not a lot.
Today’s trading tips
These have been sparse lately, as we’ve been nervous. But we’ll sing a familiar song with a couple of additions to celebrate the long weekend.
As of 1:30 p.m. EDT, the Dow is actually attempting a feeble rally, but other averages remain firmly underwater. In other words, things remain quite negative, although the volatility index (VIX) indicates there will be plenty of yo-yo-ing and whipsawing in the markets until a clearer picture emerges, so this is the environment we’re currently working with.
Stay in cash as much as possible until the current nonsense blows over, however long it takes. Averages and charts are breaking down badly in everything except utilities, some REITs, consumer staples and high-grade bonds. Commodities are significantly stressed right now, particularly oil which has, perhaps not surprisingly, gotten into a glut scenario. (Although you’d never know this from stubbornly high prices at the pump.)
We’ve been hedging with the relatively conservative short S&P 500 ETF (SH). But this morning, on the advice of one of our subscription services, we loaded up on two additional hedge ETFs, AdvisorShares Ranger Equity Bear (HDGE) and the dreaded 2x short S&P 500 ETF whose trading symbol—SDS—always amuses us, recalling those feisty domestic Weatherpeople terrorists from times past.
Employing the latter, however, requires nerves of steel and largely full time attention while you have it on, so please, if you’re squeamish, forget we ever mentioned it.
The whole idea behind using ETF hedges like SH, HDGE and SDS is not really to make money, but to stabilize a portfolio of stocks that you actually like and don’t want to sell in a panic. So, if you don’t have a lot of stocks, or got out last month, you don’t need to use these.
Otherwise, stand clear until HFTs Gone Wild figure out another way to get their illegal jollies. If you get in front of them, you’ll soon learn how road kill feels.
Have an enjoyable holiday weekend.