WASHINGTON. After a brief rally, U.S. stocks quickly headed down Monday morning. This action followed the worrisome Turkish currency crisis news that engulfed Wall Street traders late last week. As we write this column at approximately 13:30 p.m. ET, the Dow seems more or less happy with a Monday loss of about 100 points (-0.39 percent). But, as always, who knows where the day will end?
The broader-based S&P 500 is off approximately 6.75 points for a loss of -0.25 at the moment. But the tech-heavy NASDAQ is trying to keep its head above those turbulent currency waters, although it’s just slipped below flatline for the day.
As we’ve written in previous column’s it’s the Turkish currency crisis that’s been troubling traders recently. The typical, low-volume trading environment we tend to experience every August amplifies this nervousness. If the big traders are on vacation and if those who remain get scared over this or that, relentless low-level selling soon dominates Wall Street action. That’s the way you get a downward drip, drip, drip like the one we see once again today.
It would be nice to see a little buying jump in here, but that’s too much to ask. U.S. markets have been getting a little toppy anyway. So a bit of fear is all it takes for the lemmings to hit that sell button.
Turkish currency crisis raises fear of international financial instability
That’s not to say that the Turkish currency crisis is negligible. That country’s increasingly autocratic government appears not to know what it’s doing. Today, Turkey’s once robust economy flounders. Inflation has gotten out of hand. Only now is Turkey’s central bank trying to shore things up.
Worse still, Trump has ordered additional higher, punitive tariffs against Turkish steel and aluminum exports. Already, these are turning the economic screws tighter. This move marks an acceleration of President Trump’s pressure on Turkey to release an American hostage they currently hold. The Turkish government still intends to use the hostage to gain the extradition from the U.S. of a Turkish cleric. The regime claims he masterminded the relatively recent coup attempt in Turkey.
But so far, no go. The U.S. clearly has the upper hand. But, like all dictators, Turkey’s Recep Tayyip Erdoğan will likely feel obligated to dig in his political heels lest he show any weakness. Any “deal” that doesn’t involve the U.S. caving to Erdoğan’s extradition demand is likely to continue to be “no deal.”
This one may not play out very quickly. Because the Turkish economy is so substantial, any worsening in that country’s currency crisis is capable of roiling the world’s banking institutions rather badly. That’s particularly important, given Turkey’s interlocking contracts and agreements with other international banks and trading partners.
That fear is what’s got investors transfixed right now. Things aren’t likely to change very soon. Neither is the selling.
Time for short ETFs?
We’ve been contemplating the purchase of short S&P 500 index ETFS. That means either (SH), the one that tracks this index directly; or SDS which gives you 2x the velocity of an S&P 500 index loss. But we’ve done nothing with either of them at this point. The problem is, the current market average downdraft is not so violent and scary that it compels us to put on such hedges. That could change. But thus far on Monday, it hasn’t.
What else is going on this week besides a currency crisis?
There are other things going on this week that could influence the market direction. They often do. But with traders preoccupied with all things Turkish – particularly the currency crisis engulfing the Turkish lira – these usually key pieces of news can disappear inside the funhouse of international intrigue.
Tim McPartland, presiding guru of the invaluable site currently known as Innovative Income Investor, offered an excellent run-down on those other news items coming down the pike this week.
“For this week we have a bunch of economic reports and we don’t see a single one that is likely to be market moving. Monday and Tuesday have nothing to speak of report wise, but Wednesday is loaded–with, Retail Sales the Empire State Index, Q2 Productivity, Industrial Production, Home Builders Index and Business Inventories. Thursday we have Housing Starts and Building Permits and Friday we have Consumer Sentiment and Leading Economic Indicators. This is quite a list but given the recent history of the marketplace nobody cares–until they do. I think that we will see little reaction, but just the same we will review the data, because while no single data point is important taken as a whole they may have meaning.”
(Bold passages occur in the original.)
Preferred stocks and baby bonds: Still a good place to hide your money
Tim’s site, BTW, invoves uncovering, buying and holding for income investments in high-yielding and (if possible) relatively short term preferred stocks and baby bonds. We’ve taken advantage of a few of his featured high-yield issues and they’ve been doing well for us. The primary reason for our interest here is twofold:
We’re getting on in years and the idea of getting some regular income from preferred stocks and baby bonds of at least half-decent quality becomes increasingly appealing.
Given the decent yields on these investments, they are more likely to remain fairly stable, price-wise, in any market selloff.
Yes, the value of preferreds and baby bonds can and will vary with the interest rate environment. But variances are less for these investments if they have limited short-to-medium term duration. Typically, they either mature or get called in, say, 3-5 years from now.
Stability vs. capital gains vs. The Swamp
Stability is what we’re looking for right now in a year that’s proved a bit rough for our portfolio and our usual method of investing. Happily, as of now, we’re on breakeven for the year. But we’re not satisfied with that, even though we’ve booked quite a lot of dividends over the last few months.
Capital gains will make us happier. And we’re likely to get plenty of them if President Trump and his numerous adversaries in The Swamp get down to business instead of partisan politics. Alas, this may only happen if the Republicans maintain their majorities in the House and Senate in this November’s mid-term elections.
A 2019 impeachment scenario will make the current currency crisis look like a Sunday School picnic
If the Democrats take at least the House this fall, get ready for a time-consuming but doomed-to-fail effort to impeach a legitimately elected President. But after all the absurd sound and fury, impeachment will fail in the Senate, where it takes 67 votes currently to actually throw a president out of office. Even in the Democrats’ most optimistic scenario, an impeachment trial in the Senate is highly unlikely to get those 67 votes.
Any impeachment scenario unfolding in 2019 can tie up the government in knots for months. Such a scenario may also drive businesses and stocks into the nasty bear market the media craves, notwithstanding 18 months of Trumpian economic success.
We’ll just have to wait and see what happens. America’s fall elections may deliver a far greater negative punch to U.S. stock markets than the current Turkish currency crisis. If the wrong party wins.
MAGA vs. Obamanomics: What will voters and investors choose?
It actually matters little what big company CEOs and small business owners think about President Trump personally. A great many of them are, underneath the virtue-signaling, absolutely gung-ho for both his economic policies and his ongoing destruction of useless regulations. Ditto all the permanently underemployed of the Obama Era who now find themselves gainfully employed and decently compensated.
The Democrats have already guaranteed in their public statements they’ll wreck all this. And, of course, raise taxes. It’s what 8 years of Obamanation was all about. Voters who go into a voting booth and buy this nonsense yet again are, quite simply, voting for their own economic destruction. One wonders, however, how many voters actually understand this, particularly those living on America’s East and West coasts.
Mr. Market wonders, too.
Headline illustration. Cartoon by Branco. Used with permission and by arrangement with Legal Insurrection.