Markets liquidating as rates rise
A steady increase in long-term interest rates is pulling the rug out from under stocks and other assets.
Investors 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 email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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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?
"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".
Now hear this now hear this stand by for heavy seas!! (and heavy losses....SUCKERS!!!)
.....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!!
A couple more adjectives, adverbs and maybe verbs....
And you really would have had, me at a Lost...(not loss).
I guess I will be agreeing with Anthony, as per his headline lead...
And the basis or gist of the content.
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.
Where`s Barry S. & mirage guy today?Either they married each other or the men in the white
coats rounded them up.
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