Stock market falling…falling…
The stock market was down over 500 points earlier today, but as I type this it’s “only” down 286. Don’t know how it will end up for the day, but it’s been very jittery:
The sell-off that has engulfed global stock markets early in 2016 intensified Wednesday, with the Dow plunging as much as 565 points and oil breaking below $27 a barrel for the first time since 2003, Japanese stocks skidding into bear market territory and European shares shedding more than 3%.
“It is fear based selling,” says Nick Sargen senior investment advisor at Fort Washington Investment Advisors. But it is not yet “panic selling” like back in 2008, he adds.
Well now, that’s reassuring.
There’s a bad feeling in the air about the future. Actually, it’s been there for many years, but it’s intensifying:
For now, as many Wall Street pros have been saying, “As oil goes, so goes the stock market.” Unfortunately, signs of stabilization in the oil patch have not appeared amid a supply gut, slowing global growth and Iran bringing on more supply after economic sanctions were lifted.
Not to mention China’s problems.
Those who have investments in the market have long realized the iffyness of it. But for a long time it’s been one of the few ways to get any decent return at all in terms of income flow, particularly for retirees. A real dilemma.
I am a retiree. Pulled 90% of my IRA out of the market several months ago. Glad I did now. The risk is just to great at this time to lose everything.
Thing is this correction or whatever this is … is actually GOOD for “younger” investors. No one can say when but one day the market will rebound.
I’m thinking my investor days are over with exception of small investments here and there.
Retirement about 2 1/2 years away and I pulled all but 10% of my retirement out of the market 7 years ago. With the Dems in power I knew nothing good was eventually going to happen. I don’t quite understand why oil drives the market. Seems to me, an economic simpleton, that if the cost of energy is down, then that part fo doing business is no longer a drain on resources, so that’s a good thing, right??
I know I certainly don’t mind the prices at the pump; I just wish the airlines would get with the program as they have been complaining for a decade that fuel costs are the primary reason they have had so much trouble.
This is ALL on Obama.
He does nothing as we are now in an industrial recession. The Iran deal will kill OUR oil industry. Iran and the Greens hate America.
I’m retired too. 70% – probably less now 🙂 – of our investable assets are still in the U.S. stock market.
Why?
The fixed annuities we own cover over 115% of our expenses.
And Social Security isn’t set to go bankrupt for another 20 years. So we shouldn’t even need to touch our emergency fund.
I have no clue if the market will recover soon. Or even in my lifetime. It should. The last 90 years suggest it will. But I suppose it could be that “this time it’s different”.
Retired people might look at buying consumer debt at the Lending Club platform. Well diversified and can yield 10%. Treasuries pay less than 2%.
As Adam Smith said, “There’s a lot of ruin in a nation.”
Meaning, a country almost never collapses at once, especially a country as well-developed as the US. The fall is always partially arrested on the way down, like someone falling down the stairs who reaches for the rail.
The Great Depression took 3 years to play out, from market peak to bottom.
@physicsguy
“I don’t quite understand why oil drives the market.”
The MSM financial media always have a Narrative for down days, and most of the time they’re full of shit. Remember the “polar vortex?” Yeah…
Oil had nothing to do with this. It was pent-up pressure from a 3 day weekend coupled with bad economic fundamentals being released, coupled with continuing market volatility in China. But the talking heads don’t get paid to tell you that the shit’s about to hit the fan.
If these people were good at stocks, they wouldn’t be bobbleheads on TV.
physicsguy: the markets react in different ways to the same thing at different times. Usually I would say that you are correct in that cheaper oil is good for the economy. This time round though its is seen as an indication of week demand for oil rather than new supply and therefore indicates a weaker world economy.
@Tuvea,
1) It’s never different this time.
2) The market will stay down at least a year, I would guess.
The real question isn’t duration, but how quickly the market sheds 50% of its value. I wouldn’t consider getting back in until that happens, but keep your eyes open.
I agree with MattSE about the perceived need for a narrative any time the market loses. Sometimes it is almost comical.
I defer to others about whether the price of oil is due to lower demand–due to less productive activity–or to greater supply. Some of both I presume. However, I do not understand why cheap energy would not be seen aws an advantage across the spectrum. It should certainly be a boon for anyone in transportation, or anyone who needs to move goods; i.e. most everyone in commerce.
Read recently that our trade with China is a much smaller fraction of our economy that most realize. I would think that over time, weakness in China would equal opportunity elsewhere.
If we can just hold on for another year, Trump will make everything all right again. Smirk.
Mrs. Parker and I have a paper investment wealth in the low 7 figures, yet we understand big bubbles (created by the FED) always result in a steep correction. We are both retired, and cover our living expenses from our other investments. IMO liquidating stocks and bonds is something to be done if one is in dire straits, otherwise ride the roller coaster.
Low crude can be positive for energy consumers, but bad news for banks holding the debts of the oil producers or those with large investments in energy related stocks. I am of the same mind as London Trader, the drop in crude reflects a slowing global economy and the simple truth of too much supply and falling demand.
I use the commodity markets and the Baltic Dry Index to gauge the state of our global economy; not the cooked books of governments and central banks. My pov says its going to be a very rocky year.
Parker
Cheaper to rent a big tanker for a day than a Ferrari.
Take out your old Econ 101 book. Look up monopoly and oligopoly price-setting. Oligopolists set prices at the lowest level necessary to keep new competitors out of the market. Simple as that. KSA has done just that to keep American frackers out. They may drop prices even further to keep Iran out.
“There’s a bad feeling in the air about the future. Actually, it’s been there for many years, but it’s intensifying”
The herd senses the danger even though most haven’t a clue as to specifics.
The West’s fiat money system deflates currency’s purchasing power, while simultaneously increasing inflation, i.e. the cost of products and services. This is what is responsible for wage stagnation among the middle class.
The left’s promotion of the entitlement state results in ever greater levels of indebtedness, until unsustainable levels of debt are reached, resulting in the eventual collapse of the monetary system. That is our mathematically inescapable future. It’s not a matter of if but of when and ‘the herd’ senses it.
“I don’t quite understand why oil drives the market.” physicsguy
Very high oil prices negatively affect consumers and manufacturers and very low oil prices negatively affect oil producers. Growth is optimum when supply can match increased demand. Boom and bust cycles disrupts supply.
Excessive dependence upon exports or imports is a formula for periodic cycles of boom and bust. The US and Europe are import dependent. Brazil, China, Japan and the oil producing nations are export dependent.
Disruptive technologies like fracking are a threat to established industries. The Saudi’s have flooded the market to greatly lower oil prices in order to put fracking companies out of business, seeking to retain their dominance of oil. The Iranian entry into the oil market will act to keep oil prices depressed.
“China has kept its currency below market value, frowned on individuals investing outside China with their savings, kept its economy keyed to exports, and created make-work projects: empty ghost cities.”
There is only one number on my mind today –
365
When you wake up tomorrow, he will have less than one year left in office.
Several points to make about the economy and the market.
1. Job growth has been stifled by increasing regulation and Obamacare. Many people have just quit looking for work, so they don’t show up in the unemployment statistics. There is no sign of a pick up in hiring in most industries at this time.
2. Most of the job growth and wealth creation of the Obama years have come from the oil exploration and production industries. With oil prices dropping, that growth is going away.
3. Many smaller oil companies have financed their exploration and production with high yield debt. That debt is now starting to default.
4. Lower oil prices can mean less demand, but in this case we have a combination of higher supply (OPEC has not reduced production to meet less demand.) and less demand from the big emerging markets (China, India, and Brazil). The Saudis seem intent on “destroying” the fracking business. What they don’t seem to realize is that fracking companies are developing new, cheaper technologies, (which will lower their break even points) and that the tight sand and shale deposits are there and will be drilled and produced eventually. The Saudis overproduction is merely a speed bump on the way to that production. (The future outlook is good – now, not so much.)
5. Many companies have been borrowing money at the very low interest rates of the last seven years and buying back their own stock. This has provided a sunnier picture of their earnings. If the Fed continues to raise interest rates, their ability to goose their earnings by buying back stock will fade. Lower earnings, or even less growth in earnings can deflate stock prices.
6. The slowdown in China, India and Brazil, coupled with crashing commodity prices, has hit our heavy equipment companies (Caterpillar, Deere, Joy Global, etc.) hard. One more wealth creating industry that is on hard times.
IMO, those points add up to hard times ahead. Exactly how hard is unknowable at this point. A 40% drop in share prices is not an unreasonable expectation, but I’m guessing it won’t be that bad.
When I turned 80, I realized my investment horizon had shrunk to about 15 years, if I’m lucky. My nut is big enough nut to last at least 15 years. My primary consideration now is capital preservation. For the last two years I have been mostly in investment quality preferred stocks that I bought below par and a few CDs. Many of the preferreds have recently been bid above par. I gauge that as money coming out of stocks and into income investments. Or it may also be some people betting that the Fed is not going to raise interest rates. I’m of a mind to sell those that get bid up over par. I can get 1% in a one year CD. Not much, but better than seeing my preferreds bid down to 20% (or more) below par as they were in the last crash. If things do go south I can always buy back some good preferreds below par when things look really bad.
To someone with years to go before retirement, a drop in the market is an opportunity, but it requires knowledge and courage to make the most of it. For those in or near retirement, take a look at bond ladders, investment quality preferreds, and indexed annuities (for money outside of tax advantaged accounts). But do your due diligence.
We are entering another down leg within the Greatest Depression.
1) 0-care un-FDR’s the economy.
When FDR created the 30 year mortgage market ( yes it took a while to really get rolling ) he had created the primary source of money growth.
Barry’s 0-care TAX cripples the ability of family forming newly marrieds to purchase a home and raise kids.
This means that no mortgage is let. When this is compounded across the economy, the result is HYPER deflationary.
It also means that folks wishing to move on up to a larger home can’t — for there is no market for their current home.
No-one can qualify for a mortgage — even though downpayments have been practically eliminated.
For after paying the 0-care TAX there is no money for a home.
We should expect to see newly married couples doubling up with their parents — as the new norm.
2) The above sequence means black news for most manufactures.
For many, many, items are only purchased during new construction — and then as replacements decades later.
3) The above realities also destroy the FIRE economy.
Finance
Insurance
Real Estate
And all of its hangers on.
See “The Big Short” for just how many souls are dependent upon new home sales.
&&&&&&
The TOP of a bull market is always evidenced by troubles in the junk bond market space — FIRST.
Unlike stocks, junk bonds trade on their HARD CASH FLOW.
Hope does not cut it.
Further, junk bonds are always professionally managed:
Bond funds
Pension funds
Hedge funds
Because of the trading commissions and the darkness of the market — mom & pop investors can’t hold junk bonds directly. Anyone trying to do so gets murdered by the spread — especially when liquidating.
As professionals, these guys are ever attentive — and first out the door.
If you care to review prior market events, you’ll find that junk bonds broke down months before the 1929 fiasco — and all the rest. Indeed, they called the tune in the 19th Century — as most rail road bonds were junk bonds.
Junk bonds exist entirely because of hyper aggressive corporate barons who are financing big — and don’t want to share their equity exposure. ( ie sell common stock )
( Junk bonds in the 19th Century also included preferred stocks, BTW. All the tycoons of that era issued scads of preferred stock. )
&&&&&&&
The junk bond market broke down months ago… seriously.
The price of oil is entirely dictated by the sovereign needs of Riyadh.
It has NOTHING to do with market demand.
Consumption has not collapsed at all.
The main target of the Saudis is IRAN — and RUSSIA.
The American frackers are a great talking point — but entirely irrelevant to the Saudis.
American fracking output was NOT competing with Saudi sales.
That’s a fact that the pundits can’t quite figure out.
The American surge was coming at the expense of NIGERIA.
The main market for Riyadh is in ASIA.
It’s main rivals in the market are Russia and Iran.
The newly started up Yanbu complex is forcing middle distillate into the European market — and in volume.
This fuel is priced to drive Russian NATURAL GAS off the market.
The Saudis have been angling for Eastern European long term fuel contracts.
Due to Stalinist design mandates, all of the Eastern European cities are piped like Manhattan island. They have central steam heating — which can run on coal, oil or natural gas.
At current prices it makes perfect sense for all customers of Putin’s gas to turn off the spigot and burn Saudi middle distillate.
The pucker factor in Moscow at this time must be immense.
So oil pricing is economic strategic war — and American frackers are a side show.
BTW, KSA can’t afford to keep prices this low. They will burn through their entire ‘kitty’ in half a decade.
Selling off their sovereign wealth fund to cover their nut — is the true source of the bear market.
You’ll note that the pundits can’t quite figure that one out, either.
Richard Saunders
Your comment is exactly why we need a tariff on OPEC and Iran oil.
The two of them will kill our oil industry and then oil goes back to $100 bbl.
Having lived through the prior Oil Bust of 1984-86, when every other home in Houston was for sale, folks in TX, LA and NM packed up and mailed the keys to their mortgage holders, and regional unemployment became as bad as in the Depression, I can assure you that nothing will kill off the US Oil Patch. Unless Iran or ISIS bombs, really bombs, about a dozen Gulf Coast refineries simultaneously.
Of course,the rest of the USA was doing pretty well back then and few in New England shed tears for us. The Yankees loved the low prices.
JJ
Take a look at buying consumer debt on the Lending Club platform. You can buy in $25 increments. Not pushing it. You can do your own due diligence. Disrupting the banks.
Silver is cheap right now, I am buying physical silver delivered to my hands, in 10 to 50 ounce amounts, when the spot price dips below 14 .5 per ounce. Its pretty to look at, feels nice to hold, and one day I think it will be 50 or more per ounce.
Cornhead – I have a teeny amount (10K) in an IRA in LC for about 1 year now. I’ve made about 7.5% (per their calcs, I haven’t attempted to figure out IRR). Seeing when a loan is written off bothers me which is why I don’t shoot for higher. But in this environment, 7.5% is good!
I had 1K (non-retirement) invested as a test to see how it went. I made around 8% on that. But I’ve been pulling it out after I did some in-depth reading on tax issues and it seemed like doing it right would be a hassle.
So yes, I think this investment is doing better than most of my other retirement investments! And it’s certainly opened my eyes to the interest rates that charged by the banks and credit card companies.
Of course, I just reached a point that I felt comfortable opening a brokerage account to buy stocks directly but have been paralyzed through both analysis and the dropping market.
As a post script I must state that American frackers were also displacing the lost Libyan production.
Between Libya and Nigeria you’re looking at 2.6 M bbl/day of sweet light crude exports.
Before fracking took off, America had been importing astounding amounts of Nigerian — and other African light, sweet crude.
This usually entered the East Coast market space.
Heavy, sour crude is vectored down to the Gulf refineries that have been massively engineered to handle it.
Fracking threatened to push Russia out of the market.
Looking down the road, Riyadh saw that further American production was likely to bounce over to Japan, Korea, Taiwan and Australia.
Big Oil is not interested in selling crude to Red China.
It would rather feed its own crude to its own distribution networks.
This is usually a sign of some kind of massive follow up to a billionaire, like Soros, taking money out. It’s like an aftershock to an Earthquake.
I find it surprising that a bunch of rag headed Arabs in Saudi Arabia, have a better concept of the economic war aspect of Total War, than America, the infamous empire of guns and war.
Ironic and funny, in a sense.