WASHINGTON, February 11, 2016 – It’s getting really hard to write this daily column that describes the background and the action in the (once) wonderful world of stocks and bonds. Bears have been running rampant on Wall Street since the first trading day of 2016 and the carnage has already become considerable. The death and destruction is at the point where it’s become a chore to come up with fresh superlatives to describe the relentless daily carnage.
The only thing we can’t quite tell yet is whether we’re in a cyclical (short) or secular (long-term) bear market, because the current action has become far more than a mere correction. Today’s action, as of 2:30 p.m. EST, find the Dow down some 330+ points, the S&P down 37 and the NASDAQ off a nasty 57+.
That all-important, broad-based S&P 500 is flirting dangerously with its August 2015 support line. If this average breaks it decisively, we’ll be sorry we didn’t bet more heavily on the short side. Sometimes that’s hat an optimistic frame of mind will get you.
The culprit, once again, is oil and the news from that sector has been very bad indeed. Word filtered out this morning—we haven’t confirmed it yet—that Phillips (symbol: PSX), Warren Buffett’s current favorite stock, is actually dumping some of its refined product at below market costs. If so (and it’s rumored Valero [VLO] is contemplating the same action) that removes the theoretical bottom we’d thus far figured would be supporting this sector.
As of this morning’s facts/rumors, however, that theory has gone the way of most others in 2016: out the window and into oblivion. The refiners are getting pancaked. Having gotten a bad feeling about things via Wednesday’s miserable market action, we dumped our beloved Calumet (CLMT) for a loss near the close. We see that stock is down hard again today, so we’re better off out of it at least for now.
Our remaining holdings here are Valero (looking sick again today) and, indirectly, Spectra Energy Partners LP (SEP) a still highly-profitable natural gas pipeline MLP that pays a high dividend, just reported a swell quarter but tanked today just for the hell of it. Looks like there’s no escape from the 2016 LaBrea Tar Pit that is the oil and gas sector.
Just to show you how bad it is, for the first time in over two years, gold has finally climbed back into its usual niche as a hedge against fiscal disaster, rising sharply again today. Some mysterious powers have been holding the yellow stuff back for a long time. But the onslaught of bearishness concerning world economies and monetary systems has at last become so savage that the urge to buy gold has apparently overwhelmed the nefarious Powers That Be who, it seems, can no longer hold this glittering store of value down.
We currently have some gold via ETFs, but wish we had more. On the other hand, gold is up so sharply this afternoon that it might have a minor correction tomorrow, at which point we may start nibbling. We still hold silver (via ETFs) which, while more erratic than gold due to its many commercial uses, is also on an upward trajectory, though it’s less impressive.
Otherwise, the double short S&P 500 ETF known as SDS is hedging at least some of our remaining portfolio of stocks and bonds. The rest of our money is in cash or cash equivalents like short term CDs. It’s just too dangerous for anyone to invest here. Every classic, PE and chart-driven move is the wrong one now, as the ruthless and mindless machine driven selling is getting close to driving all the non-machine buying power right out of the market.
These HFT machines and the clowns who run them could care less, however. Shadow stats attribute plus or minus 70 percent of every day’s trading action to these mechanical monsters. So once they’ve run out of shares to short or simply sell, they’ll just turn around and start buying them back, firing up another rally that will eventually disappoint. Forgive the metaphor, but at this point, it looks like the machines are just playing with themselves.
Meanwhile, the regulatory agencies that are supposed to protect investors just look the other way, awaiting the plum private sector investing jobs they’ll get when they retire after 20 years of “service,” collect their massive, taxpayer supported pensions, and take even higher paying jobs with the enemy. It’s a great system we have here.
Who knows? By the time Thursday’s market hits the closing bell, we might be in rally mode. But everything is false at this point. Janet Yellen, as is clear from her second day of Congressional testimony, demonstrates once again that the Fed doesn’t have a clue. And, of course, the current lame-duck administration has never had a clue to begin with, so the nonsense will continue until it no longer can.
Keep your cash close. After this carnage is over, there will be a colossal bargain basement sale. But right now, if you buy today’s mark down, you’ll wake up in the morning and find they’ve just marked the same merchandise down again.