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Business/Finance See other Business/Finance Articles Title: PANIC!! (Is What We Need) PANIC!! (Is What We Need) Mike Larson | Friday, January 15, 2016 at 4:22 pm No, I’m not yelling “Fire” in a crowded theater with that headline. I’m merely pointing out that the one major missing ingredient to this ugly, nasty start to the year has been panic. Aggressive, unadulterated selling that results from primal fear of losses. Don’t believe me? Then just look at the S&P Volatility Index, or VIX. In August, it soared to more than 53 when the market melted down. In October 2014, it jumped to more than 31. Want to go back even further? In the summer of 2011 when the debt ceiling debacle unfolded, it surged into the mid-to-high-40s multiple times over a period of several weeks. In the spring of 2010 when we had the Flash Crash, the VIX spiked above 30 several times — and jumped as high as 48 — over a period of a few weeks. Then there are the credit crisis days of 2007-09. We saw several spikes into the mid-30s in the early phases of that crisis. Then there was the mother of all explosions in the fall of 2008 — to just shy of 100! I’m not saying things are as bad now as they were when the Great Recession was raging … when Lehman Brothers was going under … when the Dow Industrials was swinging between 500 and 800 points every few days … or when former Treasury Secretary Hank Paulson was literally getting on his knees and begging Congress for hundreds of billions of dollars in bailout money. US STOCKS Nail-biting time in the markets. But can we all agree that the carnage in commodities is virtually unprecedented? Can we all agree that emerging-market currencies are plunging at some of the fastest rates ever, and in some cases, to the lowest levels ever? Can we all agree that corporate earnings are disappointing, and that key sectors like autos, banks and tech are now in serious danger? That more and more corners of the global economy, including China, are slipping into or close to recession? That the junk bond, leveraged loan, and convertible bond markets are reeling? You could argue that stocks are pricing in some of those problems by having the worst start to any year since at least 1896. And some Wall Street firms are clearly throwing in the towel. But VIX hasn’t really soared (yet) and I haven’t (yet) really seen the huge “risk off” moves I’ve been expecting in things like the Japanese yen. Even at the worst level of the day, the VIX only hit 30.9.The evening news isn’t camped outside the New York Stock Exchange yet, nor are “bloodbath on Wall Street” stories plastered across the front page of your local newspaper. That’s not to say today was a good day for stocks. It wasn’t, and a key contributor was the litany of putrid economic data we got. Let’s start with retail sales for December. Overall sales fell 0.1%, ex-autos sales fell 0.1%, and ex-autos, ex-gas sales fell 0.5%. All of those readings missed forecasts. The full-year gain in sales — 2.1% — was the weakest going all the way back to 2009. The Producer Price Index also fell 0.2% last month, underscoring disinflationary pressures on the economy. Industrial production plunged 0.4% in December, more than double the 0.2% decline that was forecast. Capacity utilization sank to 76.5%, the lowest since March 2012. “I have been urging you for months to dramatically cut your stock exposure.” Lastly, the Empire Manufacturing Index of factory sector conditions in the greater New York area plunged to -19.4 in January. That was far worse than the -4 reading that economists were expecting, and down sharply from -6.2 in December. So what should you do? Well, hopefully you’re sitting pretty during this downturn because you followed the advice I’ve been offering since last spring to dramatically cut your stock exposure, raise much more cash and hedge/target downside profits with inverse ETFs and other profit-packed investments. If you have to own stocks, at least focus on highly rated, non-economically sensitive stocks. If you haven’t taken protective action, then don’t wait any longer. Also feel free to check out my “Bear Market Playbook” columns from September, located here and here. They have more practical guidance. (Editor’s note: Mike also has specific recommendations in his Interest Rate Speculator service. He just made some more “buy” and “sells” this week for subscribers.) Lastly, and as always, stay safe and share your market thoughts at the website below. Your fellow investors will no doubt appreciate hearing your views in these turbulent times. Post Comment Private Reply Ignore Thread
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