Tech stocks fall as the bond rout continues

U.S. stocks fell on Thursday led by technology shares as a spike in bond yields fueled fears of equity valuations and caused investors to sell growth-focused high flyers.

The S&P 500 slid 0.4%, falling from a record closing high reached in the previous session. The tech-heavy Nasdaq Composite dropped 1.4% as Apple, Alphabet, Microsoft and Facebook all fell at least 1%. Tesla slipped more than 3%. The Dow Jones Industrial Average traded 150 points higher, supported by bank shares.

The move came as the 10-year Treasury yield jumped 11 basis points to 1.75%, its highest level since January 2020. The 30-year rate also climbed 6 basis points and breached the 2.5% level for the first time since August 2019. Rising bond yields can have an outsized impact on growth stocks as they make their future returns less valuable today.

“Risk of rates rising too fast remains a key concern,” said Craig Johnson, technical market strategist at Piper Sandler. “Buying pressure has not been equal over the last several weeks as growth stocks lag behind due to headwinds from higher interest rates.”

Investors digested a mixed bag of economic data Thursday. Weekly initial jobless claims totaled 770,000 for the week ended March 13, worse than an estimate of 700,000, according to economist polled by Dow Jones.

Read the rest here.

How to Win at the Stock Market by Being Lazy

Read it here.

Executive Summary: Low cost broad based index funds or near equivalent ETFs are very hard to beat. Even the so called professional money managers, who often charge scandalous fees, rarely beat the dirt cheap fund that just tracks the S&P 500. 

Robinhood attempts to explain trading limits

Online broker Robinhood said that it put temporary buying restrictions on a small number of securities because central Wall Street clearinghouse-mandated deposit requirements for equities increased tenfold.

The decision by Robinhood, a free-trading pioneer and app that’s popular among small investors, drew scrutiny from its customers over the past week.

“It was not because we wanted to stop people from buying these stocks,” Robinhood said in a blog post published late Friday.

“We did this because the required amount we had to deposit with the clearinghouse was so large — with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements — that we had to take steps to limit buying in those volatile securities to ensure we could comfortably meet our requirements,” it continued.

Amateur investors using Robinhood and other apps bid up heavily shorted stocks and caused GameStop shares to skyrocket 400% in the past week, resulting in major losses for hedge funds who shorted the shares.

Robinhood initially told investors they could only sell and not buy new shares in certain companies that were attracting attention from retail traders on Reddit. The brokerage is now allowing clients to buy only a single share of GameStop. A total of 50 securities are now restricted on the stock trading app.

Source

GameStop: Wall Street's bloody battle of the shorts

Something is happening on Wall Street that is almost unheard of. A war has broken out between large institutional investors (banks, hedge funds etc.) and small investors. And as of this post, the small investors are crushing the big boys of the financial world. 

Read the story here.

If you don't understand how short selling works, you can read a plain English explanation here. 

Disclaimer: I do not own or speculatively trade any individual stocks or other financial securities which is very risky. Nor do I encourage speculative investing unless you fully understand what you are doing, the risks involved, and are prepared to lose some or all of the money you are playing with. 

Luke Gromen discusses macroeconomic trends

Get ready for the recovery of the 1%

There were two important economic events on Thursday. The government reported that 6.6 million Americans filed for unemployment, an all-time record. And the Federal Reserve announced a new program to flood the economy and financial markets with $2.3 trillion in liquidity — including buying up junk bonds from debt-laden companies.

Which one moved the market? The Fed move, driving the Dow Jones Industrial Average up 500 points by midday.

The market jump, unemployment surge and Fed rescue efforts all converged to form a new split in the economy, between the asset-rich and the rest of America.

Much like the early days of the financial crisis recovery, the wealthy (or the top 10% who own more than 85% of the stocks and financial assets) were quickly saved by the Federal Reserve and Congress.

In 2009, the stock market jumped more than 50% from its low, thanks to the TARP program and other Fed and government support. It took the rest of American almost a decade to recover lost wages and their home values.

The diverging fortunes of the haves and have-nots led to a massive, post-crisis backlash against the wealthy. It gave rise to the Occupy Wall Street Movement, the Tea Party, anti-establishment politicians and a roaring debate over inequality.

Now, while the root cause of the crisis is vastly different, and no one is talking about greedy sub-prime bankers who brought the trouble on themselves, the coronavirus and response is likely to lead the country down a similar anti-elite path...

Read the rest here.

The Stock Market Bounces (and a personal note)

So the stock market just had it's best three day run since 1931. Yep, that's impressive. And I honestly hope that this is the first sign of confidence in a general economic recovery. But something worth remembering is that the early 30's on Wall Street became infamous for bear market rallies. These wild upward ticks, also known as suckers rallies or a dead cat bounce, never fully recouped the earlier losses and always preceded another sharp sell off. 

With a veritable wave of ugly news still waiting in the wings, I have no confidence in this stock market. And now that the government is printing money like it is water and monetizing the bond market, the only asset I'm nibbling in right now, is gold.

To be clear, I'm not making any predictions here. All I'm saying is that these are dangerous times economically and it does not feel like we are near the end. My gut says things may be just warming up. So if you have a well diversified portfolio (stocks indexed, bonds, a solid cash reserve and maybe some gold) I'd just sit tight and wait things out. Nine times out of ten, selling into a financial panic just locks in losses. But I'd definitely not be making speculative investments right now unless it was with money I could afford to lose.

[On a personal note; thank you to those who have inquired about my health. My symptoms have, thank God, been very mild. A persistent dry cough that turned into the achy blahs with on again off again low grade fevers. A little shortness of breath and the urge to lie down every time I did anything even remotely active. This has lasted for around three weeks now and I am sorry to say when it first started I didn't even realize my cough could be more than a reaction to my dogs shedding. Happily the symptoms have been fading lately to the point where I mostly feel fine now. I hope to be able to begin the seven day countdown either tomorrow or Saturday where if no symptoms return I can bust out of this joint. Options of places to go are pretty limited right now but even just a trip to the gas station would be a relief. Stay safe everybody.]

Ray Dalio: Paradigm Shifts

This is a longish read and may be somewhat dry for those not interested in economics and or investing. However, I believe it worth the time.

Read it here.

China's stock mania decouples from economic reality

China’s stock market boom has reached outright mania, with equities galloping higher at a parabolic rate, despite threats of a crackdown by regulators and the continued slowdown of the national economy. 

The Shanghai Composite Index has risen 32pc in the past six weeks, blowing through 3,000 to a three-and-a-half-year high even though corporate earnings are declining steeply.

Read the rest here.

Facebook's Timely Lesson

It is a seldom heard and even more seldom heeded maxim: In general, people should not buy individual stocks.

Source.

Well, three days into its first week of being a publicly traded stock and the much fawned over Facebook (ticker symbol FB) has lost 18% of its value. Now I don't want to rub salt into any open wounds for those who may have bought the stock but as an important object lesson this is too good to pass up. The point being that buying individual securities is ALWAYS a form of speculating. You are trying to outsmart the financial markets and very very few people can do this with success over the long term. There is a mountain of statistical evidence and studies showing that in any given year around 2/3 of your high priced Wall Street money men will underperform their respective index. Over any given ten year period it's about 90% that fall short of the index. When you further factor in the generally steep fees and expenses they charge, or that you pay your broker in trading fees and then add on the tax implications of trading stocks, the number of those who beat the market becomes statistically insignificant.

You are not going to beat the Street especially over the long term. Wall Street is the world's biggest casino and they have the house advantage from all those fees and expenses.  Even worse this casino is as crooked as your dog's hind legs. Insider trading and price fixing are rampant. Remember when you buy a share of Facebook or whatever stock you think is about to get hot you are probably buying it from some big investment bank, which means they think it is going down. These people have every tool in the world at their fingertips (legal and otherwise) and they still come up short of the index most years. What makes you think you are going to be in the 1% that actually beats the house by a wide enough margin to make up for all the fees and added taxes?  Here is the bottom line... Speculating is a suckers game.

Folks if you are going to be invested in stocks (and most people should be) stick to one or two broadly diversified low cost index funds or near equivalent ETFs. This is the only way you are likely to get your fair share of returns on the stock market. As far as asset allocation goes, being deeply conservative, I am a fan of the late Harry Browne's Permanent Portfolio (see here and here). But even a very simple 50/50 portfolio suggested by the legendary Jack Bogle consisting of half in a total US Bond Market Index Fund and the other half in a Total US Stock Market Index Fund will give you good returns over time with limited risks. Look for the cheapest funds you can find, reinvest the dividends and then leave it alone other than for rebalancing once a year or as needed.

Facebook IPO is a flop

Facebook stock's slide continued Monday, leaving some investors wondering about the outlook for the newly-public social network.

Facebook's stock tumbled below its $38 IPO price on its second day of trading. By Monday afternoon the company’s share price was down 10 percent from Friday’s closing price of $38.23. (You can track the performance of Facebook’s stock price here.)

When a stock falls below its offer price so soon after an IPO it is considered a disappointment for the company, particularly when the IPO is the most heavily traded ever and concerns such a high profile company.

Read the rest here.

Warren Buffet's advice on stocks and bonds

There’s been a bunch of press lately about how Warren Buffet dislikes bonds (and gold) and loves stocks. In particular, he warns on bonds and inflation being a bad combination. Yes, they are. That’s why you shouldn’t own just bonds (or any single asset). He also advises (according to this article which may be wrong) that investors be 100% in stocks. Yikes!

Well I thought it would be interesting to crank up www.stockcharts.com and see how he’s done with his company Berkshire Hathaway (BRK.A). Going back as far as stockcharts.com allows for these funds (1999), we can see how he compares against the maligned US Treasury Long Term Bonds (Vanguard’s version), Vanguard Total Bond Market, and Short Term Treasury Fund also from Vanguard (interest and dividends included):
Berkshire Hathaway vs. Long Term Treasuries vs. Vanguard Total Bond vs. Short Term Treasuries

Read the rest here.

Ooops... That tarnishes someone's star.

Some Sober Observations and Advice For Investing

Doing some research recently I’ve found that almost 9 out of 10 of the trades on any given day on Wall Street are between professionals, not individuals. Think about that for a second. When you go to make a trade, 9 out of 10 times you are doing it against someone that does it for a living. And not just a living, but paid really big bucks to do it and has a tremendous amount of resources behind them. This includes mutual funds, pension funds, hedge funds, professional speculators, investment banks, etc.

But it gets even better. If 9 out of 10 trades are between professionals that means that most of the trades pros do are between each other. Now that’s interesting to consider. That means the average you see in the investing products on Wall Street represents the best that the pros on Wall Street can do in any single year.

Often I read about an investing strategy or trading method that claims to beat the broad market indices. That’s a pretty bold claim. I have to wonder if the sellers of these ideas are aware of the reality of trading on Wall Street. To think that you’re going to teach an individual investor to go up against a highly skilled pro and win. It’s kind of like telling an amateur golfer they are going to turn into Tiger Woods if they just buy the right golf club. It’s a fun thing to think about, but just not very realistic.

Even much vaunted hedge funds, the supposed masters of secret Wall Street strategies, often bomb. If they can’t do it, what chance does an individual have?

Read the rest here.

This is good advice.  I particularly recommend the article linked in the source post. 

Most Mutual Funds Are Ripping You Off, Says IFA’s Mark Hebner

Source.

I am generally very cautious when it comes to offering any specific advice on investments and have almost never done so on here.  That said, I will give a thumbs up to Hebner's comments.  Anyone interested in the subject is encouraged to do a little research or just read any of the works by Jack Bogle.  Yes, there are a VERY few exceptions, but in general I don't like managed mutual funds, especially when it comes to stocks.  Low cost index funds are almost always your best long term investment for stocks.

They give you instant diversification (a broad based index), added security (individual companies could go belly up, whereas an index might take a hit but you will never lose all your money in one), and the costs are much lower than managed funds.  Fees and expenses matter.  They cut into your long term profits big time because they detract from your compound returns. And then again you come back to a mountain of data and studies going back decades that show index funds outperforming actively managed mutual funds or privately managed portfolios.

Financial markets tumble over spreading debt crisis

Worries about Europe’s debt crisis and possible moves by authorities in Asia to slow fast-paced growth there swept the world’s markets on Tuesday and pushed stocks in the United States sharply lower.

As finance ministers from the 16 countries that use the euro met in Brussels to discuss the problems in Ireland, investors worried that the debt crisis could spread across the Continent to Portugal, and even to Spain.

“There is a worry about the state of things overseas. It is the European debt crisis that is causing this,” said Zach Pandl, economist at Nomura in New York.

Stocks, which have been grinding lower since the Federal Reserve announced its asset purchase program to stimulate the economy, fell for the seventh consecutive day.

The Dow Jones industrial average briefly fell below 11,000 for the first time since early October. At the close it was at 11,023.50 down 178.47 points, or 1.59 percent on the day.

The Standard & Poor’s 500-stock index fell 1.62 percent, and the Nasdaq composite dropped 1.75 percent.

Read the rest here.

Today in numbers and what they mean...

Setting aside for the moment a near 1000 pt drop in the DOW over the space of about 15 minutes (that was probably at least partly a technical glitch) today was the latest in a string of very ugly days as the world appears to be finally taking notice of the oceans of red ink out there.

Some quick numbers for consideration...

The DOW ended down 347.8 or 3.4%
The S&P 500 down 37.2 or 3.24%
The NASDAQ down 82.65 or 3.44%
Oil down 2.81 to 77.21 per barrel (It was over $86 just last week)
The Euro was slammed, dropping to 1.2529 to the dollar

The only things that rose were the dollar which made new highs for the year against the Euro and and the Pound, US high grade bonds which rallied across the curve and gold which rose 33.20 to $1209.80 oz an advance of some 2.8%.

Conclusions... there is a growing alarm at the vast amount of sovereign debt in the world and the possibility of a cascading debt crisis. As per normal in times of alarm there was a flight to the dollar and the most conservative of dollar denominated securities. However this time, unlike in 2008, we are also seeing a large move into gold which has been rising steadily for well over a month. Of particular noteworthiness is that gold has been rallying IN TANDEM with the dollar. This has been going on for weeks and does not appear to be an aberration. If in fact gold, which has historically done the opposite of the dollar, is in the process of decoupling from the USD it could signal investors increasing concern over US sovereign debt levels and the anticipation of large scale intervention by the FED and other central banks around the world. In effect gold may be in the process of becoming once again the world's defacto reserve currency.

Wall Street: It's not over

I believe we may be in the early stages of a cascading debt crisis.

More on Roubini and Shiller's Dour Outlook

Another excellent analysis of where things really are... and where they may be going.

Well, you guessed it. I'm here to post up even more bullish news! And, by bullish news, I obviously mean bearish news. After all, its Nouriel Roubini and Robert Shiller.

Here's the deal, Shiller has a set of S&P earnings and P/E ratios available in spreadsheet format here. Big hat tip to Cliff Küle for flagging this Shiller data and graphs to our attention. Cliff posts up some historical info, illustrated below. First, real S&P composite earnings:
Click to enlarge:

And secondly, historical P/E ratios and interest rates.
Click to enlarge:

By that historical data, you'd think that a 5 P/E could be achieved given the severity of everything that's happened. But, if you're not that apocalyptic, then maybe somewhere around 10x would be more appropriate. And, 'Dr. Doom' himself, Nouriel Roubini thinks that the S&P500 will see 600, which could be somewhat close to 10x by his measurement. Taken from Bloomberg,

The benchmark index for U.S. stocks would have to slump 12 percent from last week’s closing level to meet his forecast. Roubini is assuming that companies in the S&P 500 will report profit of $50 a share this year and investors will pay 12 times that for equities.

My main scenario is that it’s highly likely it goes to 600 or below,' Roubini said Thursday in an interview at the Chicago Board Options Exchange Risk Management Conference in Dana Point, California. A level of '500 is less likely, but there is some possibility you get there.'

Source