WASHINGTON, December 15, 2014 – Although it’s a little chilly, it’s a nice day here in Washington, with temperatures up somewhat and with sunshine shining away. Up in New York, Wall Street also basked in the morning sunshine, which seemed to lift last week’s very bad stock market mood.
But to mix metaphor, this era of good feelings turned out to be a mirage as either the Grinch, a very Bad Santa, or both jumped into the fray to destroy the positive mood.
After a nice opening kick upward—predictable, considering last Friday’s short-term oversold situation—the Dow Jones Industrials were suddenly hit for a 150 point loss, and the S&P 500 and the NASDAQ tanked in sympathy. This December is starting to look more like a Santa Claus Massacre than a Santa Claus Rally.
The reason why? After a slight uptick, the price of crude oil was quickly hit again, adding to last week’s debacle. The resumption of last week’s selling took most oil and oil-related stocks down again just after they, too, had experienced a brief moment of green ink. Almost immediately, pretty much everything else tanked in sympathy.
We’re looking at coordinated moves here by hedge funds, mutual funds and HFTs. Retail investors, or at least the ones who are left, can’t move markets like this or create this much volatility on their own.
The miscreants listed above have mixed up a wicked December stew whose not-so-secret ingredients include speculation, rumor-mongering, tax-loss selling, and massive short selling, all kicked off by Saudi Arabia’s so-far successful attempt to show that they—not the U.S., Russia, or China—rule the world since they control the OPEC cartel and thus the worldwide price of oil.
The ensuing carnage has been pretty ugly. Check out this price chart of major international oil and gas companies, via ZeroHedge:
The ignorant financial press have goosed this seemingly endless negative move along quite nicely for the Saudis. Stupid or hypocritical pundits and hedge fund managers are engaging in an utterly meaningless “how low can it go?” contest, further scaring the bejeebers out of rational investors, who, in the face of failing logic, are now dumping their energy shares and everything else. This merely adds to the overflowing pot of short-selling gold at the end of that dark HFT rainbow.
We suspect there’s also something else afoot as well. The current received wisdom out there is that the Saudis will put all frackers out of business, maybe tomorrow even, thus ending the U.S. oil bonanza and once again justifying big taxpayer investments in “green” energy, re-filling the pockets of rich Democrat politicians and crony capitalists who’ve bet on this ridiculously subsidized sector. (We’ll offer further observations on this in our companion column, “The Prudent Man,” once we look at a few more numbers.)
The Maven noted last week that we were due for at least a brief oversold bounce in the market this week, perhaps Monday or Tuesday. Thus far, it ain’t looking like Monday, but that’s not a particular surprise as Mondays have tended to be rather blue anyway in 2014 with Tuesdays often turning out much better.
This morning’s brief positive interlude, we think, wasn’t that oversold bounce. Once stocks were up a bit, the sellers sensed they could start selling out again at slightly less bad prices and hit everything once again.
As far as this sustained, horrendous selling is concerned, we’ll quote Yogi Berra for about the sixth time this month to assure our readers that even today “it ain’t over ‘til it’s over.” The pundits happily predicting this or that oil price will be the absolute bottom—we’re now hearing $50 bbl.—are blowing figures out of an orifice that shouldn’t normally emit smoke. Nobody knows, except Yogi.
UPDATE: We couldn’t finish today’s article until just after Monday’s close, but things really didn’t improve at all. The DJI closed down another 103 points. The S&P 500 turned in a minus 12.80, and the NASDAQ was off a whopping 41.87, putting an end, at least today, to tech stock’s resistance to the continuing oil-led downdraft. Looks like we’ll have to wait until tomorrow, or perhaps Wednesday for that big snapback rally that is inevitable after declines like this one.
But what’s not inevitable is when it will happen or whether it will be just a dead-cat bounce. After all, the Fed will issue its latest report on Wednesday. If, as everyone is expecting, the Fed drops its magic words–“for a considerable period of time”–both the Maven and everyone else will wish they had sold all stocks out of their portfolio today. On the other hand, if the Fed does change its language in a way that implies interest rate hikes sooner rather than later, the epic Wall Street blowoff that ensues will likely mark that still elusive intermediate term bottom the bulls are earnestly hoping for.
Stay-tuned. If the Wall Street Journal’s official Fed plant Jon Hilsenrath telegraphs the Fed’s intentions tomorrow, as he sometimes does, Tuesday could be the clincher, one way or the other.
Today’s trading tips
The stock market is a bloody mess, that’s for sure. The Maven’s portfolio is looking comatose, as is the likely situation of any individual portfolio that still has skin in this game. As of today, we’ve dumped what we can and/or what makes sense—all those otherwise perfectly good energy stocks and high-yielding MLPS—and have trimmed related sectors and ETFs.
But we’ll ride out the horror show with the rest of our holdings. We’ve learned over the years (roughly 1979-present) that except for 2007-March 2009, most stocks of good companies will eventually come back and make you money once the nonsense is over.
We are hedging a little bit today, picking up shares of the short (inverse) S&P 500 ETF (SH). This ETF makes wimpier moves than its double short counterpart, SDS. But we don’t want to get too far into Shortsville only to lose money on the now virtually inevitable snapback rally, even if it’s only a dead cat bounce.
The one bright spot in the Maven’s portfolio, and it’s a lucky one, happens to be the 100 shares he owns of last week’s stellar LendingClub Corp. IPO (LC). 100 shares was all the Maven could get and he was lucky to get them, as this issue—a peer-to-peer lending company—was and still remains fire-hot.
LC debuted at its IPO price of 15, took off like a rocket and never looked back. It’s actually up another $1.25 this morning and is now trading at nearly $26 per share, a whopping 72% gain at this point. You can imagine the profits of all the rich guys who actually got most of the shares of this fire-hot issue because they could.
LC boasted pretty good numbers, which is generally unusual in an IPO. Furthermore, they’re in a surprise sweet spot. Their business involves people like you and the Maven pitching in small amounts of money to form a loan pool. After due diligence, the money is then lent out to little guys who need a loan but who get the door slammed in their faces every time they try to get one from a bank—any bank.
Now you see the picture. LendingClub is part of a new business model that came into being because banks, under pressure from the Federal government—simply won’t loan money anymore to those who actually need a loan. Warren Buffett, of course, can get all the loans he wants whenever he wants them. But peons like you and the Maven can’t, although we do subsidize loans to our betters, including Uncle Warren, Bill Gates, and most crony capitalists who donate to the Democrats.
LendingClub and other peer-to-peer loan companies—like Prosper.com, in which the Maven participates as a lender, FYI—are beginning to fill this gaping loan gap. Given our sclerotic political and banking structures, peer-to-peer may prove to be just the disruptive concept that breaks the old and now completely dysfunctional lending paradigm in this country. Hence, the buying panic that followed LC’s IPO.
Yes, this may be overdone, just like the ongoing energy crash. But we suspect this brand new sector may have considerable staying power. In any event, it’s the only spot of sunshine in our otherwise gloomy portfolio today, so we’ll take it. If you’re not in LC right now, we’d advise you not to chase it here. At some point fairly soon, there’ll be some dumping of shares for the easy profit. And this might be the time to get involved. But certainly not now.
As far as the broader market is concerned, anyone who’s not an experienced trader should stay the hell out of it for now. Given the tax-loss selling involved in the over all picture here, and given the violence of the current downdraft, there’s an outside chance that things won’t even hint at a market recovery until trading opens on the morning of January 2, 2015.
Either the Grinch or that Very Bad Santa has already stolen a chunk of Christmas from the Maven. There’s no reason why you should join him on this one! Even the lumps of coal you’d get would be worthless in this environment.