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The Spectacle Blog
After half an hour of trading on Tuesday, the stock market is having its worst day in several months, with the S&P 500 down more than 16 points, or about 1.2 percent. The Dow Jones Industrial Average is down just over 140 points, and the Nasdaq 100 down about 29 points, each about 1.1 percent.
In the “nothing is safe” category, gold is down almost $30/ounce with every other commodity I watch except for natural gas also down on the day. Economically sensitive materials, such as oil and copper are getting hit hard, with the latter being down more than 2.5 percent. Copper is considered one of the most economically sensitive commodities.
In addition to many people thinking the market is “due” for a correction, it is primarily overseas news driving today’s pessimism. There is fear that the Greek bond swap (in which current bondholders swap their bonds for new bonds with roughly half the nominal value) may not go smoothly. A European organization suggested that a disorderly default could cost 1 trillion euros in financial damage. Meanwhile, Europe’s GDP shrank in the last quarter, making the EU appear to be on the bring of a second recession in three years. China lowered its growth estimate yesterday from 8 percent to 7.5 percent. China is Brazil’s largest trading partner. This, combined with recent strength in Brazil’s currency, has damaged Brazil’s economic growth which was reported at a 2.7% GDP growth rate, down from 7.5 percent in 2010.
In our global economy, slowing in major developing markets bodes very poorly for our economy as well, particulary for commodity and heavy industry companies, such as miners and machinery companies. For example, copper and gold producer Freeport-McMoran (FCX) is down nearly 4 percent today while Caterpillar is down more than 3 percent.
The US economy is in modestly better shape than many other places, but we will not escape at least a modest sniffle if most of the rest of the world catches cold.
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More Blog Posts by Ross Kaminsky
http://spectator.org/blog/2012/03/06/market-melancholia
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Notwarren| 3.6.12 @ 10:11AM
All of that has been well reported already. Share with us your expertise. What would you advise retail investors with balanced portfolios including exposure to gold, european large caps, tech and Dow high yield stocks.
Ross Kaminsky | 3.6.12 @ 10:27AM
I don't give advice. I sometimes talk about what I am doing. But I don't manage money and am not licensed to do so; I just trade my own portfolio.
For what it's worth, I've been bullish for most of the time since early December, but haven't made as much as I should have because I was betting on a decline in expectations of future volatility. Instead, market participants kept betting heavily on high future volatility (by buying VIX futures). They look smart today, of course, though the up move in VIX futures today isn't disproportional to the huge down move in the market itself.
In general, although I do have some exposure to silver, I am very skeptical of investing in metals. The more the rest of the world has troubles, the stronger the US dollar will be, and that's bad for metals. Also, as long as the market thinks the Fed will not implement QE3, that will support the dollar and be bad for gold and silver.
I'm neutral on Europe...at some point it will be a good buy. I like US tech a little better, but nothing is safe if the market really comes to believe in a persistent global slowdown.
As for high-yield stocks, they make a lot of sense but it's a crowded trade which concerns me. Also, if somehow Obama is not stopped when it comes to his tax hike plans, dividends will become much less attractive. That said, I don't think he'll get what he wants.
If I had to pick an area, I'd say I like various REITs, including mortgage REITs. I own some CIM and a couple of other stocks like that. These are quite risky, however, and should be limited to a modest percentage of a portfolio.
How's that?
Pete| 3.6.12 @ 10:45AM
The market is a casino right now. My best guess is that the market will undergo a substantial correction some time in the next few months, and then have a "magical" (read, Obama-induced) comeback by election time. Even the massive, Putin style voter fraud I expect in November can't overcome crappy economic stats AND a down market.
Notwarren| 3.6.12 @ 1:12PM
Thanks.
Mike 3/505| 3.6.12 @ 3:45PM
Invest in guns, ammo, coffee, tobacco seed stock, fertilizer, bottom land with woods and running water. :-) Oh yeah and alcohol...or a still.