Spooked and confused: US stocks and bonds lost in the Wall St. funhouse
WASHINGTON – As Wednesday trading action began, US stocks and bonds once again looked spooked and confused. A crash Monday. Up and down Tuesday. A minor rally thus far today. Halloween, anyone? Actually, September and October are often not much fun for investors. Traders often find this period a delight of treats and occasional tricks. Investors, not so much. Current verdict? We don’t like the market’s current tone very much.
Jim Cramer describes the spooked and confused state of US stocks and bonds
Much maligned (but often correct) CNBC market guru Jim Cramer had some interesting insights regarding the action in US stocks and bonds that’s currently got your average armchair investors (or “home gamers” as Cramer likes to call them), well… spooked and confused. Nothing seems to parse lately. So US stocks and bonds alike seem lost in the current Wall Street funhouse.
But Cramer gave it a try in his Friday countdown to this brand new trading week.
“[This week] could be a relatively calm stretch for Wall Street, CNBC’s Jim Cramer said Friday, but he advised investors to start preparing for trading days on the horizon.
“‘Get ready. After next week, the onslaught of earnings and the Labor Department’s all-important non-farm payroll number will strike,’ the ‘Mad Money’ host said. ‘After a crazy up and down … week, we’re now headed into a calm before the storm moment here, and that storm could get a lot worse depending on what happens in China, where there’s no calm to be found at all.’”
Evergrande: Maybe not so grande?
Cramer was referring here, of course, to the deeply troubled Chinese money moguls involved in the disastrous mess known as Evergrande. Our good buddies over at the Clinton News Network (aka, CNN) actually posted a decent and useful summary of this Chi-com fiscal disaster merely waiting to play out. Investors in this company should already be spooked and confused.
“Evergrande is one of China’s largest real estate developers. The company is part of the Global 500 — meaning that it’s also one of the world’s biggest businesses by revenue.
“Listed in Hong Kong and based in the southern Chinese city of Shenzhen, it employs about 200,000 people. It also indirectly helps sustain more than 3.8 million jobs each year.
“The group was founded by Chinese billionaire Xu Jiayin, also known as Hui Ka Yan in Cantonese, who was once the country’s richest man.
“Evergrande made its name in residential property — it boasts that it ‘owns more than 1,300 projects in more than 280 cities’ across China — but its interests extend far beyond that.
“Outside housing, the group has invested in electric vehicles, sports and theme parks. It even owns a food and beverage business, selling bottled water, groceries, dairy products and other goods across China.”
Anyone smell way too much indebtedness here?
You get the picture. CNBC’s resident gurus and the usual financial disaster pundits are already comparing the near-insolvency of this company to Lehman Bros., the Wall Street financial firm that arguably became the last straw in the American real estate and financial institution collapse otherwise known as the Great Recession. Could an actual collapse of Evergrande do the same thing?
Disaster alarmists certainly think so. While Evergrande paid out interest to its Chinese bondholders last week, they stiffed investors foolish enough to get involved with non-Chinese bonds issued to investors in Western countries. Interest was due to foreign bondholders on Thursday. But so far, nobody’s gotten a red cent in the West. Or maybe a Red Yuan?) The Chinese government always takes care of its wealthy Communist elites first and foremost. Foreign investors? Well, Beijing will happily take our money. But if there’s a financial problem causing issues for the government, well, too bad, you Western capitalist saps.
That’s not how things have played out yet. Word is that the always resourceful Chi-coms are figuring this one out, somehow. But this situation doesn’t look very good. Plus, beset with a host of other problems of their own making, the Chinese Communist government can always be counted on to take care of themselves first. And this has hung a massive investing Sword of Damocles over world markets at exactly the wrong time of year for most investors. Resolution of this situation – either a good one or a bad one – could determine the direction of world markets, or our own, for many months to come. Word is that Beijing may somehow “tax” their big corporations for an Evergrande bailout / wind down. Don’t miss the next thrilling episode.
Also Read Our Earlier Heads-up Article: Thursday market action reveals US stocks flirting with a major decline
An obvious investment tip: Steer clear of those very spooked and confused China markets
As far as this writer is concerned, the first line of portfolio defense is to stay out of China. Sure, a sharp trade can still make money in this market. But after President Trump’s unfortunate (and seriously gamed) exit from the White House, no one in Washington is much interested in playing hardball with Beijing. So Beijing will do what they want to American investors and others as well. So I continue to steer clear of this market entirely.
And I’m also leery of companies that have become way too dependent on the Chinese for producing allegedly American consumer goods. Yes, that means you, Apple, as much as we love your products. Trump pushed American companies to bring at least part of their manufacturing efforts back to the USA.
What’s happening now to American and world supply chains post-Covid – and perhaps, soon, post-Evergrande – shows the wisdom of Trump’s approach. But that’s a wisdom entirely lost on America’s very first phantom administration. Yep, the Wuhan Flu is truly the gift that keeps on giving. Investors beware.
Like that legendary emperor, the entire Federal government has no clothes. And no brains…
Elsewhere in his Friday article, Cramer provides daily hints regarding companies and stocks that might move markets up or down. I am pretty much neutral at this time and lack much enthusiasm for anything right now. Particularly given our beyond bizarre political situation in Washington, D.C.
Living right outside of the Nation’s purported capital city, I continue to see unmitigated “progressive” arrogance and stupidity, continuing pro-China media and government malfeasance (or much worse) and total denial by a fearful governing class still more obsessed with keeping Donald Trump out of Elections 2022 and 2024 than in addressing the nation’s problems. Except, of course, for illegal immigration, which remains an utter disaster presided over by an illegal president who currently lacks a functioning brain.
And this ruling class regards itself as the “best and brightest.” I’ll take Joe the Plumber any day.
Anyway, back to Cramer.
While also remaining wary of Evergrande and its potential world-wide fallout, Jim does have kind words for Carmax (NYSE:KMX), which, contrary to “informed” opinion, continues to sell tons of used cars, given that the perpetual chip shortage (China again?) has shut down both foreign and domestic car and truck assembly lines.
He also thinks chipmaker Micron Technology (NASDAQ:MU) and RV manufacturer Thor Industries (NYSE:THO) could work. But perhaps only once tech and manufacturing quiet down from their current freak-out mode.
I’m not so sure. I, for one, remain spooked and confused. Just like US stocks and bonds.
But if Mr Market does decide to quit teasing us and just CRASH for G-d’s sake, we’ll soon find bargains galore.
Value stocks and ETFs also look good here. Interest sensitive stocks? Not so much…
Given the current Fed vacillation concerning just when they’ll pull away the inflationary punchbowl, however, bonds and related investments (preferred stocks, baby bonds, utilities) aren’t looking too good right now. Their prices tend to go down when interest rates go up, which they’re already doing. We may even have to pare down some of our beloved high interest bearing preferred, which have anchored our portfolios for years.
Our portfolios’ current overstocking in preferred stocks and baby bonds has been getting a haircut for weeks, due to rapidly rising interest rates. So it might be time to cut back here, although we’re loath to part with the high interest rate returns we’ve been reaping from these otherwise boring investments.
But once again, like Mr Market, we and our portfolios of stocks and bonds remain spooked and confused.