WASHINGTON, September 14, 2016 – It’s hard to pin an accurate headline on this nervous, slippery, rumor-driven, Fed interest rate policy-driven and just plain skittish September stock market. Already made nervous by the UK’s pro-Brexit vote earlier this summer, traders and institutions alike seem ready to panic on even the faintest hint that the Federal Reserve will raise interest rates even a teensy-weensy bit. September’s yo-yo market action is the result.
This nervousness, particularly when it comes to interest rates and international currencies, adds to the post-Brexit volatility in stocks. Although not widely reported for obvious reasons (as in media bias), an increasing fear that Donald Trump—who’s steadily gaining in most polls—might actually win the November 2016 elections is simply adding to the unease. It would be tough luck for the crony-capitalists and ur-globalists like George Soros if he actually won, to the great delight of all those Deplorables.
CNBC’s online site is feeding this building hysteria, still averaging 3-4 anti-Trump headlines nearly any time of the day you look. The latest rocket-propelled grenade from that network gives ear to the reliably academics Jamie Thompson and Sarah Maxwell opining from their comfortable, tenured sinecures on how a Trump Administration would destroy the U.S. economy and perhaps world economies as well, erasing “‘as much as $1 trillion off the forecast size of the U.S. economy in 2021,’ Thompson said via email.”
If Trump were able to implement all of his proposed policies, that would undermine global economic growth and knock 5 percent off where U.S. gross domestic product (GDP) would otherwise be in 2021, U.K.-based economists Jamie Thompson and Sarah Maxwell said in a note Tuesday. That would erase as much as $1 trillion off the forecast size of the U.S. economy in 2021, Thompson said via email.
The writers are both employed, CNBC notes, by Oxford Economics, “an independent advisory firm, originally founded in 1981 as a commercial venture with Oxford University’s business college.” They imagine that
“Trump’s plan to deport the estimated 10.9 million to 11.3 million illegal immigrants in the U.S. at an estimated cost of around $10,000 per head would weigh on consumer and investment expenditure…”
Thompson and Maxwell also worry that “The reduction in [U.S.] population size, equivalent to around 5 percent of the workforce, would also represent a material drag on U.S. labor supply.” That’s a curious estimate, given that U.S. structural, effective unemployment still hovers at around 10 percent, according to the Department of Labor’s (DOL’s) rarely reported U-6 measure.
How would deporting absolutely each and every deportable illegal alien worsen the employment chances for that 10 percent? Oh, right. The 10 percenters live in Flyover Country’s Basket of Deplorables and therefore don’t count. It’s hard to avoid having a stroke when you read this kind of drivel and poppycock.
In a rare, politically balancing piece, CNBC interviews always controversial moneyman and investor Carl Icahn who, for his part, heartily supports Trump’s candidacy, informing the network’s Jeff Cox that
“Wall Street has been shoveling money into the Clinton campaign, and recently some high-profile names have given her public support on the belief that the Democrat will create a more stable economy.
“‘They’re wrong, because you need to do something about productivity in this country,” Icahn said. ‘You don’t have jobs and you don’t have people working, sooner or later this blows up, and it blows up in so many different fashions.’”
Which was kind of the point we just made in our comments on the pair of left-leaning, globalization-happy Oxford “researchers” above. It’s hard, however, to apply logic in a realm where the Marxist dialectic took hold decades ago.
Back to the market itself, traders and machines alike seem to be grappling with a trading environment that increasingly resembles some kind of Rube Goldberg contraption whose intricate gears, trapdoors and gimmicks are often more interesting than the outcome.
This week’s interest rate hyper focus caused, at least in part, a horrendous weekly Fed bond auction, driving prices down and yields up, upsetting the apple cart in other sectors, notably the dollar—which strengthened, at least somewhat—and oil which weakened largely for the same reason. When the dollar strengthens, it puts pressure on largely dollar denominated oil. This, in turn, sparked massive selling in other sectors, returning us, at least for now, to the oil-centric trading that plagued investors this past spring.
Most hard-hit lately, however, have been the pharmaceuticals, biotechs and the health sector in general. In a macro-sense, Obamacare, as we endlessly predicted here, has begun its death-spiral, losing insurers by the bucketload.
Making matters worse for investors in this sector, Hillary Clinton’s attack on Mylan (symbol: MYL)—focusing for now on the overpriced EpiPen, which she clearly uses despite her handlers’ denials—has raised the Fear Factor enormously in the entire pharma sector, crushing prices there, something those Oxford contract-dons likely never figured when calculating all those negatives for The Donald.
It’s just one hell of a mess, actually. But we’ll strive to make some sense of it in these columns because investing in money market funds paying out 0.00000001 percent in interest just isn’t the way for an investor to go.
Sparse again today. Our currently ill-fated position in Teekay Tankers (TNK) is taking yet another broadside Wednesday, courtesy of crude oil pricing. Having opened on the plus side after Tuesday’s horrendous drop, West Texas Intermediate crude (WTI) is back to its losing ways, having lost 2 percent again to stand at precisely $40.00 bbl. as we approach the noon hour EDT. Benchmark Brent crude is taking roughly the same kind of hit, off 1.75 percent to stand at $46.28.
Should we average down again on TNK? Who knows? It’s approaching penny stock territory at this point, supported now only by its ever-decreasing but still OK dividend. Our other small oil position—Occidental (OXY) is suffering just as well, even though, at $72 and change currently, it’s not in imminent danger of penny stock territory like TNK.
Interestingly, our high-yielding preferreds are looking anemic as well, even though a tiny Fed interest rate increase at some point would not be material to their ultimate fates, as we’ve acquired all our positions in mostly term-preferreds at a discount. With most of their mandatory redemption dates roughly 5 years or less away, we would only care about price declines here if the underlying company went bankrupt, which, we are fairly sure, is not likely to happen.
But something is moving out there, and slowly, these high-yielding, generally conservative investments will lose their collective appeal. So we’re very slowly trying to diversify now back into capital-gain eligible territory, making our initial moves via ETFs. That will cushion the blow, at least short term, if we continue to have nasty, bearish squalls as we did last Friday and again this past Tuesday.
Otherwise, as we prepare for a long-weekend trip to a wedding up in Ohio, we don’t plan to do much here unless the roof falls in.