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Investing pendulum swinging for Mr Market. But which way next?

Written By | Oct 5, 2021
investing pendulum swinging

Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect. (See link below article.)

WASHINGTON – Last Thursday’s trading action concluded the miserable trading month of September, 2021. Mr Market took a bit of a breather Friday. But on Monday, October 4, September’s monster seemed to have arisen once again. All three major averages continued their drive to find a bottom. It all feels like that old 1968 Hammer horror flick, “Dracula Has Risen from the Grave.” You figure you killed the monster in the last film, only to see the damned thing pop up again. Today, October 5, stocks are trying to climb back out of Monday’s hole. But the mover remains far from convincing. Clearly, we can see the investing pendulum swinging with regard to Mr Market. But which way?

Things do not look good. On the other hand, October often starts out horribly then ends up in rally mode. Big Time. But maybe not this time.

From an interest rate / interest bearing investment standpoint, Innovative Income Investor’s once and future guru, Tim McPherson, offered some interesting opinions in his October 1 column, as excerpted below. (Bold text below by Tim McPh. For a brief explanation of the pair of terms I’ve asterisked below, look for my note at the end of this article.)

“We are in the typical goldilocks period when interest rates have already spiked higher and now are drifting back waiting for the next ‘event’ before potentially moving higher.




“Long time investors in preferreds[*] and baby bonds[*] know this is the time to re-evaluate you portfolio and make sure you are ready for the next month or two.

Re-evalute that portfolio!

Tim continues:

“If we assume that interest rates are going to move higher from here one may want to peruse their low coupon issues to see if that is where they want to be in a rising interest rate cycle since these issues will normally fall faster than others.

“As rates rise mid level quality (or even junky quality) and coupon issues will normally trade the firmest–typically falling slower than the quality issues. Additionally those baby bonds and term preferreds with ‘date certain‘ maturities in the next few years typically react less to interest rate moves since investors know they are going to realize their $25/share price upon maturity (assuming the company remains solvent). This is where I like to invest–shorter maturities–you can find those issues here.”

Many of our readers likely don’t invest in the kinds of interest-rate bearing / sensitive investments Tim and his intrepid band of commenters follow. But these, like actual bonds (and sometimes utility stocks as well), often prove harbingers of what may happen in many other investment areas.

With some of Tim’s favored investments beginning to waver, things continue to look shaky in investment land. Another example of that investing pendulum swinging. Courtesy of the Fatuous Dr Fauci, perhaps even 2021’s scheduled Santa Claus Rally may never happen.

Note:

Tim follows the money. But he. Like moi, never makes actual recommendations. That, as always, remains up to you.)

Nasty looking VIX chart warns of even worse investing pendulum swinging. Concludion: Maalox Moments ahead

Our trusty McClellan Oscillator proved wishy-washing as last week’s market action drew to a close. But our increasingly bi-polar VIX volatility index chart seems pinned in a manic phase, as in the chart today, snapshotted as of 1:26 p.m. Monday.

 investing pendulum swinging

More evidence of the investing pendulum swinging. The wrong way. VIX volatility chart, Monday afternoon, October 4, 2021. Chart courtesy Stockcharts.com.

To oversimplify, in your average stock chart, the higher the spike, the better the investing atmosphere for you. In the case of the VIX chart, higher swings mean greater volatility. And that “higher volatility” usually skews negative, not positive, at least in our experience. The recent VIX spiking action, as seen in this chart, indicates a strong period of real uncertainty remains on Wall Street for a variety of reasons.

Uncertainty is actually good for fleet-footed traders and high-speed algorithmically trading machines. Makes for fast and often quite profitable trading via small moves on heavy volume. For the rest of us, an environment like this can often screw the small investor who tries to scramble out of a failing position, manages to escape, and then finds the stock rebounding sharply once again, screwing him or her out of a potential positive move.



It’s complicated.

But again to oversimplify, when the VIX gets crazy on the upside, small investors often run into trouble. And losses.

The VIX remains in crazy mode today. So beware. It may prove a good time to clear out of some wobbly positions.

And what areas might those wobbly positions include. Simple. It’s a domino effect, based on increasing fears that the current, hard-left, holographic excuse for an administration in Washington has no clue about what it’s doing. Except perhaps for advancing the Bernie Sanders / AOC / Cuba / Venezuela path to socialism, which is clearly predicated on the ruin of almost all of us. Except for the mega-wealthy faux socialists who back this treasonous crusade.

I hate to intrude politics on this investing column yet again. But what I’m trying to say is that an increasing number of investors, both small and even some large ones, have been systematically bailing on Mr Market since at least August.

The reasons behind current investor nervousness are extensive and various.

They include the following:

The destruction of the dollar and other fiscal skulduggery

The intentional physical alteration of the American electorate via zero border controls

The second and third massive anti-Trump, anti-populist, anti-American worker hoaxes. These twin hoaxes, which include Trump’s “loss” of Election 2020 and the so-called January 6, 2021 Capitol Hill “insurrection” are all part of a move to crush and even illegally jail anyone opposed to the socialist bureaucrats and politicians who now control the Injustice System nationwide.

These fiscal moves, narratives and hoaxes have been substantially aided and abetted by the utterly corrupt media, which will, under no circumstances, allow the dissemination of the truth to the mass audience of Americans. Thus, this allows this massive, collective Big Lie to become the utterly untrue “truth” for any Americans unaware of how this game works. Orwell couldn’t have dreamed up a more perfect script.

Treason, anyone? Investors beware…

All this is treason, pure and simple, against the American people. But no credible counter-force exists. Not even MAGA. Astute investors can see this and realize that the entire economic system teeters on the edge. If not now, then tomorrow. So they continue, gradually, but at an ever-faster clip, to withdraw their money from this likely-to-fail system. Which way is America’s investing pendulum swinging? The wrong way, we think.

If this continues, it won’t end well. And if it continues, we won’t see a Santa Claus Rally this December. Or a recovery in 2022, which is this country’s last, best chance to change America’s almost inevitable decline before it proves impossible to stop.


*NOTE:

To make a long story short and to oversimplify: Preferred stocks are not “common stocks.” They are a different class of stock, with or without a set duration that, like bonds, offer a fixed interest rate throughout their lifetime.

Typically, they come on the market in a unique, non-IPO fashion, priced nominally at $25 per share most of the time. They then trade like bonds. I.e., when interest rates go up, preferred stock prices go down, and when interest rates go down, preferred stock prices go up. (Usually, and with slight variances depending on the quality of each issue.)

Unlike common stocks, preferred stocks cannot vote their shares. But also, unlike common stocks, they are senior to common stocks should a company head for Chapter 13.

“Baby bonds” look, smell, and may even taste like preferred stocks. They go public the same way, generally speaking. They’re usually priced at $25 per share. Except that they’re not equity investments. They are debt instruments. Hence, the term “baby bonds,” since your average bond sells in $1,000 increments.

Much more on these types of instruments is available via numerous internet investing sites.


Headline image link: Comically Incorrect.

 

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17