Markets liquidating as rates rise

A steady increase in long-term interest rates is pulling the rug out from under stocks and other assets.

By Anthony Mirhaydari Aug 20, 2013 3:29PM

copyright A. Chederros, ONOKY, Getty ImagesInvestors are unhappy. Nearly all major asset classes are under pressure. Stocks, industrial commodities, corporate bonds, crude oil, and Treasury bonds are all being heavily sold.

 

There hasn't been a singular, easily identifiable catalyst for what has pushed the S&P 500 down in nine of the last 12 trading sessions -- just a general feeling of anxiety as the Federal Reserve prepares to pull back on its ongoing $85 billion-a-month bond purchase stimulus.

 

The warm, soothing blanket of cheap money is about to be pulled away, and Wall Street doesn't like the idea of the chill that'll be left.

 

The damage is centered in the bond market, spreading outward from T-bonds to investment-grade corporates to high-yield issues. The iShares Investment Grade Corporate Bond Fund (LQD) is poised to fall below its June low.

 

 

If so, it would enter free air without any significant support until it returned to late 2010 levels -- which would be worth a 10% decline from here.

 

Safety and income-focused assets are under heavy attack, and the disruption is pulling down other asset classes in sympathy. Interest rate sensitive stocks, such as mortgage REITs and homebuilders, are getting hit particularly hard.

 

Yet the economic fundamentals, as represented by the Citigroup Economic Surprise Index, are improving on a scale not seen since last summer.

 

Folks are more worried about a reduction in the pace of monetary stimulus (remember, the Fed isn't talking about tightening policy, just easing up on how much cheap money it's injecting into the system) than they are encouraged by the Eurozone exiting recession, China showing signs of stabilization, and the fact the U.S. economy's growth rate poised for a rebound. 

 

For now, after warning investors to sell weeks ago, I'm recommending a mixed approach with increased cash allocations and a tactical focus, for more nimble traders, on areas of strength such as precious metals and areas of weakness, such as Japanese equities. Examples in my Edge Letter Sample Portfolio include a long position in Lake Shore Gold (LSG) and a short against Sony (SNE).

 

 

Today, I'm adding an additional position: The ProShares UltraShort Japan (EWV) as Japanese stocks look vulnerable as the yen rises.

 

 

Disclosure: Anthony has recommended EWV to his clients.

 

Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​​​​​​​​​​​​ and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


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34Comments
Aug 20, 2013 4:19PM
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Well the market ran way up in the 1st two quarters of 2013 probably getting way ahead of reality. Now the markets have to take a dose of QT1, quantitative tightening, so what's all the fuss about.  It's been know from the start that QE1-3 had to end and QT1-3 have to begin before we get to 2016. So sell your high flying equities and go by a couple houses before they get too expensive.
Aug 20, 2013 4:05PM
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We are experiencing some turbulence at this time !!!!!

EVERYONE PLEASE  TAKE YOUR SEAT, HAVE  YOUR SEAT BELTS ON AND YOUR TRAYS IN AN UPRIGHT AND LOCKED POSITION ! 
Aug 20, 2013 4:23PM
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the worst capitalistic  greed is the democratic greed they want to make easy money without creating any job and steal money from the people and liying to them
Aug 20, 2013 5:34PM
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"Folks are more worried about a reduction in the pace of monetary stimulus (remember, the Fed is talking about tightening policy, just easing up on how much cheap money it's injecting into the system) than they are encouraged by the Eurozone exiting recession, China showing signs of stabilization, and the fact the U.S. economy's growth rate poised for a rebound. "

Well, that just about says everything doesn't it? The "Fed" injecting cheap money into the system means that the "Fed" is creating money out of thin air, as the "Fed" has no money. If the "Fed" HAD money to inject into the system the U.S. would not have a multi trillion dollar deficit. The Eurozone exiting recession is a joke. Only 2 countries out of 17 are exiting recession, which is Germany and France. China is only showing signs of stabilization by way of sever Govt. intervention, not by way of actual true growth. Is that a rosy, feel good, scenario or what?

Aug 20, 2013 5:54PM
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"For now, after warning investors to sell weeks ago, I'm recommending a mixed approach with increased cash allocations and a tactical focus..."

I said sell yesterday, buy today, sell tomorrow, and buy the day after that.  This is my "mixed approach".

Aug 20, 2013 4:42PM
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Now hear this now hear this stand by for heavy seas!!  (and heavy losses....SUCKERS!!!)

Aug 20, 2013 5:32PM
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.....the market knee-jerked up earlier in the year due to QE.....................

 

And it will likely significantly descend rapidly once the QE is reduced - probably in 3 weeks.

 

Time to get on the sidelines in cash and await the carnage - with some brave souls enjoying this "shorting" opportunity!!

 

Best wishes to all - we can regroup on 11/1/13!!

Aug 20, 2013 5:46PM
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The easy money from the FED is over. My advice is bail out before the market takes a free fall.
Aug 20, 2013 6:03PM
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What happened to locked and loaded on our way to Dow 16,000?Bye,Bye stimulus the market is going to miss you.
Aug 20, 2013 5:36PM
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TR Rose....

A couple more adjectives, adverbs and maybe verbs....

And you really would have had, me at a Lost...(not loss).

Aug 20, 2013 6:37PM
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Good grief, Mr. Mirhaydari is the wall street version of a weather man...Sunny today, when the market is up...Storms are coming, when it's down...One thing about it Anthony, you are never wrong when you report what has just happened.
Aug 20, 2013 5:30PM
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Stop the world ~ it's time to jump off!
Aug 20, 2013 6:31PM
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Obamaville - full of neighborhoods replete with houses made of cards
Aug 21, 2013 10:03AM
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I guess I will be agreeing with Anthony, as per his headline lead...

And the basis or gist of the content.

Aug 21, 2013 12:19AM
Aug 21, 2013 5:47AM
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If the markets continue to slide from here, many will blame the talk of tapering instead of just acknowledging the markets have already had a massive move. Fact is, we are slowly but surely feeling the effects of other things. Federal, State, and Local government cutbacks without Corporations investing in our Future is a bad thing. The United States populations isn't shrinking nor is the Cost of Doing Business getting cheaper. Yet that's exactly how some folks are behaving.

Interest rates are still remarkably low and are a long way away from being consider high. Sure, interest payments on the Debt and the Stock Market are the key concerns of the Global FEDS. However Corporations seem to have little concern about creating jobs as they accumulate massive Cash Hoards and Profits. If treasuries were in such dire straits, we would already see over 3% on the 10 year and well over 4% on the 30 year. But we don't. Bond funds are a waste of time. Stocks have moved far faster than the Real fundamentals. The worst thing of all has been the massive redistruitibion of Wealth from the middle-class and the poor to the already SuperRich who refuse to create American Jobs in spite of that fact.

Aug 20, 2013 5:46PM
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Fri 4:35 PM
Question Classic how is it on your profile you've only posted 290 some odd times? Is there someway to remove posting from your profile?

Why did you edit your response to me?


Aug 20, 2013 5:41PM
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leprechaun wrote:
Classic, so many mails calling me the "fool" over past few years commenting.  "They" are silent, now.  Of course, they will be "back".  Denial is difficult when so entrenched in this for them. Meaning......secular thought processees in populism and here within culture.  All facets of culture are being destroyed, here.  This idiot in office is a Muslim.  Have not one fear of him, period..and noone else should either.  He is a disgrace. Say it again, just hope to heck nothing happens to him while he is in office....he is not worth the time....time will tell.   Fact is, our government is a disgrace.  Our nation is a disgrace and getting worse.  Our kids are being to slaughter right now and they have not a clue. Scotty better beam someone here right now. ===


Classic wrote:
Unfortunately my friend you are correct. I have difficulty everyday with  the occurrences that surround us. I FEAR  not for myself, but for my children, and grandchildren.  I and many like me are prepared to give the full measure to preserve our country 
MAY GOD BLESS  AMERICA============


If you agree with the two post above, you to are a whack.

MY GOD SAVE AMERICA FROM THGE WHACKS.
Aug 20, 2013 5:00PM
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Where`s Barry S. & mirage guy today?Either they married each other or the men in the white

coats rounded them up.

Aug 20, 2013 4:26PM
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Classic, so many mails calling me the "fool" over past few years commenting.  "They" are silent, now.  Of course, they will be "back".  Denial is difficult when so entrenched in this for them.  Meaning......secular thought processees in populism and here within culture.  All facets of culture are being destroyed, here.  This idiot in office is a Muslim.  Have not one fear of him, period..and noone else should either.  He is a disgrace. Say it again, just hope to heck nothing happens to him while he is in office....he is not worth the time....time will tell.   Fact is, our government is a disgrace.  Our nation is a disgrace and getting worse.  Our kids are being to slaughter right now and they have not a clue. Scotty better beam someone here right now. 
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