WASHINGTON, June 6, 2016 – Monday morning markets are off to the races, at least as of the noon hour. Today’s rocket fuel? Apparently upon re-thinking the issue, traders have decided that last week’s bad news on employment is good, meaning that companies can continue to use cheap, low interest-rate financing to buy back shares, make themselves look more profitable, and increase dividends to make shareholders ecstatically happy since there’s no other way to get a decent return these days.
Of course, this is and continues to be an egregious waste of the government’s ongoing “stimulus” (which no one who works 9-5 for a living has ever seen). Worse, it’s starving American companies of R&D money, since you can make a quicker buck by reducing share count to give the illusion of increasing earnings per share.
Which is why bad news is good—for those with some skin in the stock market game. Bad news like last week’s disastrous jobs numbers makes it a nearly absolute certainty that the Federal Reserve will once again delay that once guaranteed June rate hike to July or maybe even September. (Or maybe never.) And that means the ultimately self-defeating share buyback/dividend increase game will go on. Don’t blame the Maven. This is the kind of Bizarro World in which we live.
Despite today’s momentary bullishness, we should all be on guard for a potential Black Swan event later this month when UK voters head for the polls to tell the government whether Britain should stay in the European Union or get out. The stay-in vote, aka “Remain,” was regarded as a virtual certainty even a few months ago. But now, the UK’s Tory government is getting very concerned that the vote is turning against its own recommendation to “Remain.”
Even though the Brits have declined to join the Euro, preferring to keep their own pounds sterling currency, voter concerns have continued to rise to a near fever-pitch with regard to—wait for it—unbridled immigration, illegal or otherwise. As a current member of the Eurozone, the Brits are being forced to take in an ever increasing quota of Muslim immigrants, far in excess of what its government and its people think the country can really absorb.
That’s a pretty important concern, too. As in the U.S., waves and waves of largely unskilled immigrants will put heavy pressure on already stagnant wages for the average worker, creating an initial level of hostility.
But, as if this is not bad enough, a substantial number of the mostly Muslim emigrés to the UK over the last couple of decades have steadfastly refused to “assimilate” to their adopted country, as has been clearly evidenced by terrorist attacks in London and mass quantities of unreported child rapes and sexual slavery occurring in Britain’s industrial heartland.
Both issues are turning into an effective tag-team opponent for the Cameron government, which seems to have been caught almost unawares.
This is all part and parcel of what is fast-developing into an anti-government, anti-elite revolt of average workers over Western governments that seem absolutely oblivious to the catastrophically destructive force of unlimited and largely unregulated immigration. Making things worse is the fact that militant factions among these immigrants are clearly dedicated to overwhelming their genial host governments and imposing sharia law on all Europeans—and eventually on the U.S. as well.
This issue, along with the wage pressure issue, apparently remains absolutely invisible to Europe’s and America’s ruling classes, and the UK’s now up-in-the-air vote on leaving the European Union—dubbed the “Brexit”—is now a very real possibility.
Why should we care? Simple. A revolutionary groundswell movement like this is not going to stop, even if the Brexit actually loses. The average worker-bee knows his country’s feckless, clueless and perhaps downright evil oligarchs are destroying his family’s livelihood. They have concluded that waves of demonstrably hostile immigrants now flooding their nation’s shores and institutions need to be stopped—now—and they’re ready or nearly ready to topple any government that doesn’t respond.
The UK’s problem is compounded by the fact that the socialist-leaning Scots want to stay in the EU—which could also put the Scottish question back on the UK front burner if the Brexit actually wins a majority.
All of which ultimately gets us back to the U.S. economy and the stock market. The cosmic questions looming over June markets now are:
Will the Federal Reserve raise interest rates anyway, even given Friday’s disastrous May job numbers?
If the Brexit actually passes, will the UK’s exit from the European Union lead to the EU’s gradual dissolution and/or influence the continent’s out-of-control tolerance for mass immigration by a hostile force that refuses to assimilate?
The U.S. economy could be influenced strongly by any collapse or perceived collapse of the EU, causing everything from interest rates to stocks to futures to oil prices and precious metals to fluctuate wildly and violently. And, of course, this country is no stranger to wide-open and often hostile immigration either, which is why The Donald has rapidly moved toward the top of the Election 2016 charts. Middle class and working people of the world are, like “Network’s” Howard Beale, “as mad as hell and they’re not going to take it anymore.”
Both the Brexit and the over all immigration issue, along with moribund economies and utterly unresponsive governments are threatening to become a pair of out-of-control Black Swan events. That’s why, even in the midst of rallies this year, the prevailing strategy of patient, wealthy long-term investors, hedge funds and HFTs alike has been to relentlessly sell and short whenever a brief bull run occurs.
We all need to keep our investing eyes wide-open over the next few weeks. If we don’t, our portfolios could get obliterated with remarkable speed.
Short take today, as we’ve already explained our ambivalence above. We continue to be heavily invested in high-yielding investments, and it’s dangerous to be so undiversified. That said, it’s just as dangerous this month to be in growth stocks that aren’t actually growing. And it’s dangerous to be invested in anything given the increasing possibility that one or more Black Swan events will occur, and soon.
Given the lessening likelihood of a June interest rate increase, we may pick up more shares in our Big 3 asset management/private equity firms: Blackstone (symbol: BX), Carlyle Group (CG) and KKR (KKR). They’re loaded with cash and ready to take advantage of any bargains arising in this uncertain market. Otherwise, we’re white-knuckling it for now. Stay tuned.
Check out The Prudent Man’s “Investing 101” online investment course for beginners as well as veteran investors who may need a few pointers in the treacherous Election 2016 stock market. Installments so far include the following topics/links:
- Before you invest in stocks: The Preliminaries
- Common stocks, capital gains and dividends
- Income investing with preferred stocks
- The boring but (usually) safe world of bonds