WASHINGTON, September 13, 2016 – What a difference a day makes. Monday’s stock market action found the bulls back in charge, wildly buying stocks and dumping bonds on Lael Brainard’s soothing remarks regarding that elusive third or fourth quarter rate hike the Federal Reserve has been plotting for us to stifle all that inflation we’re so obviously experiencing.
Unfortunately, Monday’s stock nirvana was short-lived. The bears are back in force today, allegedly reacting to a nasty 3 percent drop in the price of crude oil. We’d also opine that those September interest rate increase fears are still bothering some of the Big Bucks Boyz, in addition to increasing Wall Street worries about 2016 Democrat Presidential candidate Hillary Clinton’s mysterious and ever-morphing carnival of serious illnesses, including the proven, the conjectural and the purely imaginary.
Hillary is 2016’s Goldman Sachs candidate (none of their higher-up employees are allowed to give a dime to Trump) and, for that matter, the preferred candidate of most of Crony Capitalist Wall Street, whose pro-oligarchy charge up Capitol Hill and accompanying White House siege is being led by the Western World’s own Dr. Evil, George Soros, and his endless and somehow mostly tax-free bankroll.
If The Boyz can buy this election and keep that Basket of Deplorables on the Flyover Country reservation, they intend to do it, and Hillary is their gal. But not if she goes toes-up first, which is what’s getting them nervous. Which, in turn, may be affecting today’s nasty downturn.
It’s no longer possible to rationally parse this market. Many of our safe, non-junk, high-yielding stocks are taking a pounding today as if the Federal Reserve plans to raise those interest rates 5 or 6 percent, maybe tomorrow. (Sarcasm alert.) They will do this, and as soon as they can—albeit not a 5 or 6 percent jolt (only kidding)—but, as Trump correctly recognized, they are highly unlikely to do it until Obama’s Third Term by Proxy is assured on the second Tuesday of November. This non-move is even more important now, given the serial lying that’s going on with regard to Hillary’s health or lack thereof.
We’d like to do some buying here. But the action this week has been so violent, so treacherous and so prone to whipsaw that instead, we’re going to take off a couple of our profitable high-yielding positions just to capture the capital gains and raise some cash. We hate to do it, but once the bears and HFTs can beat the bulls back consistently, which they intend to do, there’ll be no way to exit anything without mopping up red ink behind us.
We’re reluctantly unloading part of our nicely profitable position in the decently-yielding preferred stock ETF, symbol PGX while retaining partial positions. We’re slowly climbing into a vehicle that’s pretty much the same only different, the floating rate preferred ETF, VRP. Our brokerage allows us to trade these and many other useful ETFs commission free, which means when we say “slowly” or “bit by bit” we mean 2-5 shares at a time, since we don’t get hit by those commissions every time.
We can heavy up our positions when market conditions warrant, and by starting these positions slowly, we won’t get too badly battered if the market has much further to go on the downside.
Speaking of the downside, although the McClellan Oscillator—one of the few trading tools that still works in this Federal Reserve-gamed stock market—blipped up nicely during Tuesday’s rally, it’s likely taking a beating again today, bringing it into deeply oversold territory. This will trigger some kind of rally, but who knows when, how much, and how long. Yesterday’s bull run lasted one measly day, so we won’t get our hopes up, which is why we’re raising cash here and there.
We continue to add to our so far miserable position in Schwab’s Large Cap Stock ETF, SCHX, hoping for a bottom soon. We’ve long been underweight in this sector and need to fix that.
The writing is on the wall: the Fed intends to kill, as soon as it can, the Deplorables’ flight to safety, i.e., high yield vehicles. But it also intends to do this slowly. Today’s incredible overreaction to the obvious is killing stocks like utilities, preferreds, business development companies (BDCs), REITs and Master Limited Partnerships (MLPs), but we still rather like them. However, it’s clear that if we wish to add to existing positions, the Fed intends to take these investments lower on the price scale, so we’ll bide our time on the buy side for now.