That Was The Week That Was-4th Week January

 

Friday’s Sell-Off .  

The Dow lost over 300 points Friday. For the week Markets were down. This was the first time we’ve seen this kind of volatility and market jitters in over one year. We have almost forgotten what it was to like see a market fall on news that is not remotely connected to our economy. It was about the emerging markets. Countries such as Brazil, China, India, Turkey, Poland and Mexico. These are countries that have about as much to do with each other as mayonnaise has to do with being on a hot dog but jitters about economies over there translated into a sell-off over here. There were emerging currency strains along with economic worries. But, as the WSJ reported 1/24 ‘ Ukraine and Argentina both look worrying but their impact on global financial markets should be limited.’ I’ll have more on this at our Breakfast Meeting February 8th. Right now I’d ignore the week for the bigger picture which is our economy and the fact that this sell-off represents an opportunity to buy…or to sell.

‘Behind ever bubble, historically and forever, is easy money.’- Fred Hickey, Editor High Tech Strategist. The Week Started with Jeffry Bartash @ MarketWatch.com reporting that The U.S. is on track for best growth since 2005. Christopher Lowe, Chairman of the ABA’s 13 member panel and chief economist said a rising number of economists predict the U.S. will exceed 3% growth. Lowe calls this a ‘breakout year’. The main thing investors and the economy will not have to deal with is a dysfunctional government. That has been placed on hold for 2-years. While businesses may not like some of the decisions coming from Washington the Street understands that there is at least no uncertainty in what Washington does do. so why the 2 week sell-off? Is it a rotation from defensive to cyclical? Profit taking? Or, worries about sustainable and increased corporate earnings and lower expectations from China?

Client Breakfast Meeting. Call or write. February 8th at Sycamore Golf Course. What sectors should do well? How well do I think the economy will do? What should we avoid? Call or email reserving your seat. Continental Breakfast- Free 15 page Material Booklet.

MarketWatch and WSJ Predict Next Round of Tapering in the Fed’s Bond Buying Program to be January 29th. A December lackluster jobs report failed to dissuade the Fed from its second reduction in 6 weeks.  Expect the following language and get used to hearing it, ‘Measured, gradual reduction in the pace of portfolio purchasing as the economy tracks our expectations.’ Or, something like that. 1/21

Expert Joe Blanton Schools Younger Brokers How to Manage Fixed Income in a Period of Rising Rates.  Editorial/essay by Corrie Driebusch 1/20 WSJ/ explained that there is no way that brokers can eliminate all the risk that rising rates pose to bonds. Jim Moore at Wells Fargo Advisors says, ‘Accept the fact that you may lose money on your bonds.’ Using alternative investments are suggested by both advisors such as floating rate and bank rate funds. The following chart shows the fall of bonds since the 1980s.

Baby, it’s cold outside…. Tuesday markets started off positive and by lunch -time turned ugly and even uglier as the day went on, losing triple digits on the DJIA, even though the Naz stayed positive throughout. By the closing bell the Dow recovered and was off only 44 points. PIMCO CEO El-Erian Out at the firm in March….surprised most everyone and left founder Bill Gross alone at the helm. According to Tuesday’s whispers and WSJ sources 1-21 El-Erian’s ventures into the equity side lagged others and could have been the reason. PIMCO’s Total Return, which Gross has managed, has seen investor’s money run for the exits as bonds have been ‘extremely’ out of favor. Gross said to Bloomberg that El-Erian’s leaving surprised him. He also twitted he plans on staying for another 40 years…which should be a cute trick since Billy’s 69, and us Baby Boomers don’t trust anyone over the age of 100. Later whispers emerged that Gross and El-Erian have been at odds and El-Erian didn’t need Gross’ grief. Adios!

The Global Elite Start Arriving in the Ski Town of Davos For the Annual Big Power Meeting of Business Leaders, Rock Stars and Monarchs. 55% of attending business leaders were positive on the economy this year as opposed to 15% of those attending last year. Another source gave it as 60% positive.

Wednesday Marked 3rd Day in a Row of Mixed Markets- Dow Down Naz Up… Carl Icahn had a busy day twitting what he recently bought more of (named after a fruit) and also appearing on CNBC and advocating E-Bay split off PayPal unit. I think there’s a security law that forbids most investment professionals from doing what Carl does. Then again we can’t move markets like Carl can and have a billion dollars to back us.  Claude Erb created a comprehensive model that showed the correlation between interest rates and the price of gold. His reveal in MarketWatch’s Mark Hulbert’s column showed that if interest rates rise to 4 1/2% the value of gold would fall to a tad under $800 an ounce. WSJ 1/23 reported on the reluctance of employers to hire people. Yes, factories, are running at full capacity and the fear that the economic engine will peter out is still with many CEO/owners who are building more capacity, increasing the use of robotics but holding the line on hiring additional workers. This is across industries where expansion is necessary but companies are finding ways to delay or buy what they need at more expense than hiring workers. There was no conclusion to the ‘why’ in the WSJ article but the  inference was the lack of trust by business leaders in the government. While this attitude works well for shareholders it could derail a healthy recovery if people are not put back to work to spend money.

That kind of day Thursday. Markets off triple digits.

Georgia school lunch lady steals over $1 million from school over 20-years. Lives in a 5 bedroom manse. Retires when worried over being caught. What a country, huh?

Fears over China Drives Indices Down Thursday China’s manufacturing number fell below 50 (a magic number for analysts and traders). The estimate was for 50.3. The technical worry, according to Barrons.com 1/24, is that no China no economic global recovery. The worry is if the U.S. can do it all alone- again. No nice numbers, no mixed indices, it was all a freight elevator down. Dow off 175 points.

Icahn Girds His Loins For Proxy Fight and to push E-Bay to split off its PayPal unit. WSJ reported that Icahn believe PayPal could be put up for sale and make it a better deal for shareholders. Two Directors on the E-Bay board twitted that they are aligned to keep the companies together. 1/24

Did You Know there was such as thing as a ‘Surprise Index?’ Sure You Did.

This is a measure of the actual outcome of economic data-release relative to consensus estimates. With two years of stronger than expected data the Surprise Index was/is expected to get a little relief.

Finally- From the WSJ 1/27  investors may see not only a sell-off but a good old fashion correction. That’s when the markets pullback at least 10%. Why do some experts think its possible its because no new cash came in to the market last week and that’s always a sign of more pain to come. We’ll talk about that plus a lot more at my Breakfast Meeting February 8th.

Material and information gathered from sources considered reliable which include but not limited to WSJ, Bloomberg, Morningstar, Barrons, MarketWatch.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

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