Sunday, February 14, 2016

Yen, Rates, Oil, Stocks Go ‘Nuts’ Globally; What to Do …

Yen, Rates, Oil, Stocks Go ‘Nuts’ Globally; What to Do …

Mike Larson | Thursday, February 11, 2016 at 4:22 pm

Market Roundup
15,660.18 (-254.56)
1,829.08 (-22.78)
4,266.84 (-16.75)
10-YR Yield
1.64% (-0.06)
$1,247.10 (+$52.80)
$30.03 (+$0.37)

The Japanese yen. Interest rates. Oil. Stocks. In technical terms, they went “nuts” today. Taking them one by one …
  • The Japanese yen surged to 111 against the dollar overnight, then dropped from those highs in an early morning move that looked suspiciously like Bank of Japan intervention …
  • The yield on the 30-year Treasury bond dropped as low as 2.38%, a one-year low. And the yield on the 5-year Treasury note fell as low as 1.01%, the lowest since May 2013 …
  • Stocks plunged 3.9% in Hong Kong, 2.9% in Germany, and 254 points (1.6%) here on the Dow Jones Industrial Average, just to sample a few markets …
  • The VIX index of volatility jumped as high as 30.90, before ending the day up 7.8%. That puts the “fear gauge” ever closer to a large-scale breakout, a panic/washout signal that has been missing so far …
  • Finally, crude oil dropped to a 12-year low of $26.05 a barrel. Then we got our fifth or sixth spurious “OPEC ready to coordinate on an output cut” story of the past few months very late in the day. That caused crude (and stocks) to bounce …
Things got even nuttier on the policy front, too. Despite the fact several recent monetary policy moves haven’t worked at all, the Riksbank in Sweden decided to go further down the negative-interest-rate rabbit hole. The country’s central bank cut its benchmark interest rate by a greater-than-expected 15 basis points to negative-0.5%.
Stocks globally, including those in Hong Kong, tanked today as the financial turmoil intensified.
And sure enough, rather than soothe markets, it helped rattle them further. Sweden’s krona currency quickly reversed all the depreciation that policymakers sought by cutting rates, and ended up trading higher. The country’s benchmark OMX Stockholm 30 Index also dropped almost 4%.
If this turmoil isn’t even more proof that the time for complacency has long passed … and the time for action is here … I don’t know what is. All of the action I’m seeing in the credit, currency, commodity, interest-rate, and stock markets confirms my thesis that the credit cycle began to turn in mid-2015, and that we’re in the bearish phase now.
So what can you do?
First, keep more cash in your portfolio than you have in a long time. I dramatically raised the cash holdings in my Safe Money Report model portfolio last summer, so you should be protected. You can get my urgent updates by clicking here.
If you haven’t acted yet, for whatever reason, sell down some assets into any market bounce to boost your cash holdings. Also consider allocating a greater percentage of your 401k money to shorter-term government bond funds or stable value funds, especially if you are close to retirement.
“If you haven’t acted yet sell down some assets into any market bounce.”
Second, hedge against downside risk. There are a multitude of inverse exchange-traded funds you can buy, including those with or without leverage, to protect against losses in your portfolio. You can read up on some of them at the ProShares website.
My favorite ones are also available to any Safe Money Report subscriber, along with specific “buy” and “sell” guidance. Those recommendations have naturally risen sharply in value as stocks have fallen.
Third, if you’re more aggressive, turn this volatile and dangerous market on its head. Buy select investments that help you turn large downside moves in vulnerable stocks into handsome profit opportunities. That’s what I’ve been doing with great success in my Interest Rate Speculator service, which you can find out more about here.
Fourth, understand that bear markets are much different from bull markets. Large, cascading selloffs … followed by government or central bank interventions that spur very sharp bounces … are common. So you have to roll with the punches by taking profits on downside investments into waterfall declines, then reloading once those oversold bounces run out of momentum.
Fifth, don’t be paralyzed into inaction. I trust that you took the many protective steps I recommended last summer and fall in my services and here in Money and Markets. So hopefully, you’re riding out this crazy volatility in good shape.
But if you haven’t acted yet, I urge you to consider the prudent, well-thought-out, conservative and deliberate strategies I’ve been recommending. I believe that with the use of those, we can not only survive — but also thrive — in this turbulent market together.
With that said, I’d love to hear from you now. What steps have you been taking … or are you taking now … in this incredibly volatile market. With bonds, stocks, currencies, and commodities going “nuts,” are you adjusting your strategies? Are there particular investments you really like — or really hate — here? Let me and your fellow investors know.
Our Readers Speak
Are you seasick yet? I know I am, what with this crazy volatility and wild swings becoming the rule not the exception. So what’s going on? And where are we headed next?
Reader Donald L. laid the blame at the feet of central bankers, saying: “This is the most inept, politically compliant Fed chairman since Arthur Burns. She refuses to tell the emperor (Obama) that he has no clothes and that current fiscal policy is ruining the country.
“On top of it all, she acts as an enabler who has destroyed the time value of money. Voters know something is wrong; that’s why they are voting for Trump and Sanders even though they haven’t a clue what either would do as president.”
Reader Craig B. also picked up on the Fed’s faults, saying: “Janet Yellen is a labor-market economist by training. Unemployment and labor issues are lagging indicators. So Janet Yellen will be the last to come around. She is not going to do anything for a very long time. Investors are now on their own. There is no more ‘Bernanke Put.'”
Reader Bill S. also took the Fed to task, offering this take: “This is just another great example of why people are so upset with the ‘establishment’ and attracted to political outsiders who want things to change.
“These people in the ivory tower really have absolutely no clue about what is going on, and are just attempting to lead us down the garden path to satisfy their own needs. I almost get sick to my stomach listening to her cocky, omnipotent voice masquerading a very limited knowledge of Econ 101.”
Lastly, Reader Howard said: “One of the problems many of us have is that Washington seems to be relying on the Fed for guidance and direction. What some are hoping for is a POTUS who will actually know what to do and get on with it. I don’t have any faith in the Fed.
“Until the world of progressives learn to budget, then we face nothing but debt, default, and collapse. Too many world governments have promised far too much free stuff without any ‘Plan B’ on how to pay for it. Populations have become dependent on something for nothing governments.”
While I have been negative on the markets, and remain so now, at least one commentator suggested the time to buy may be at hand soon. Reader Jan G. said:
“All of the readers have super-negative predictions. The last time I charted this type of sentiment was in March 2009. As a contrarian, I now believe this is stock-picking time – selectively, of course. Europe is where we were in mid-2008. The banking and healthcare sectors to me look very attractive, especially here in the U.S. I am personally selling technology, utilities and Treasuries.”
I appreciate the insights, and I wholeheartedly agree that central banks have made a mess of the economy and the markets. Their constant, overbearing tinkering and aggressive interventions over the past several years inflated massive bubbles in several asset classes.
Now, the wheels are clearly coming off the wagon. That will hopefully return assets to the fundamentally defensible valuation levels they should have traded at all along – before too much funny money puffed them up. If you have any other thoughts to add, please do so in the comment section below.
Other Developments of the Day
BulletYet another of the megabanks in Europe laid an egg with earnings. The second-largest bank in France, Societe Generale, reported fourth-quarter earnings of only 656 million euros – missing forecasts of 944 million euros. Investment-banking profit tanked by more than a third, helping send its shares down by the most in a single day since 2011.
BulletTwitter (TWTR) was once one of the most-hyped technology IPOs in the marketplace. But it has done nothing but lose value over the past two years amid concerns over growth and profitability. Active-user growth stalled in the most-recent quarter, and the company forecast weaker-than-expected sales for the coming three-month period.
BulletMany insurance plans lost money on their Obamacare policies in 2014, and things didn’t get any better last year, either, according to the Wall Street Journal. The story recounted how the nation’s nonprofit Blue Cross Blue Shield plans took in $20.4 billion in premiums on their individual plans, but paid out $20.7 billion in claims.
Private insurer Humana (HUM) also just warned of deepening losses on individual plans. UnitedHealth Group (UNH), for its part, lost $475 million on Obamacare plans last year. If results don’t improve in 2016, more carriers will likely pull out of the business entirely.
What do you think about the Swedish rate cut? Is it going to work any better than the last several failed cuts we’ve seen around the world? How about the latest bad news out of a major Euro-bank – is there anything these guys can do to right the ship? And what about the news of more Obamacare losses? Will insurers be able to get it together in 2016? Let me hear about it below.
Until next time,
Mike Larson
P.S. Unlike stock markets, the currency markets never crash. Never have and never will.
The reason: Currencies trade in pairs. And since currencies are always moving relative to each other, there is always a way for you to make money.
No matter what else is going on in the world — market crashes, long bear markets, recessions and even depressions — currencies will always give you the opportunity to make money.
An option on the falling Canadian dollar posted a 76.9% gain … Another option on the declining British pound generated an 85.4% gain … And a third option on the plunging Australian dollar posted a 100% gain.
That’s enough to turn every $10,000 you invested into $20,000 in less than 24 hours!
To get on board with the massive profits to be made in currency investing, click here now.
Mike Larson Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

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