SAUDI OIL ATTACKS…oil prices higher…oil stocks gap up…buy into gold and bonds…markets down but not by much.
The question is what next? The president used the language “locked and loaded!” Stay tuned. Markets have ripped the stuffings out of growth and into value. Not sure that lasts.
The good news is Saudi oil not as important as it was years ago but still important.
Sorry…these presidential debates are supposed to pull the covers off of all the proposals coming from the presidential candidates. These debates are supposed to hold feet to the fire. These debates are not for a candidate to provide their talking points. Unfortunately, for the most part, these debates were just that.
A couple of themes still playing out.
In the past few days, value has taken over growth. This after a whole year of the opposite. We were sent a study that in the past few days, stocks under $5 were up 20%. When we do our scans, unbelievable moves from stocks that were at new yearly lows. Keep in mind, many have horrible earnings and sales numbers.
Bond yields continue to back up as that final move looked a wee bit climactic. As we write this, the 10 year has backed up from 1.45% to 1.84% in just over a week. Anyone who bought long in the last week or so, not happy campers.
Financials, especially the down and out regionals, are benefiting most from the higher rates as the spread widens. We have to mention JP Morgan is on the verge of breaking out to all time highs, moving out of an almost 2 year trading range. To give you an idea, JP Morgan is up 250% in the past 12 years but:
Santander: -47% BBVA: -61% ING: -66% Credit Suisse: -71% Barclays: -79% Soc Gen: -81% Deutsche Bank: -92%
The SEMICONDUCTORS remain quite strong in the face of crappy earnings and sales but the big bet is that the bottom is in for the cycle. The problem with this is these companies always say the bottom is in. Regardless, our motto is always to watch this group as it continues to lead markets up and down. It is now back near the old highs.
With rates backing up, we think the Fed no longer needs to lower rates by 1/2 point. When the 10 year was under 1.5%, they needed to catch up. No longer. Then again, anything is possible with these easy money dolts.
Speaking of easy money dolts, Draghi, on his way out of the ECB decides to lower rates again and print more money even though rates are already big time negative and even though they have already printed a ton of money. We think it was Einstein who said: “Insanity is doing the same thing over and over again and expecting different results!” Unfortunately this is going to affect the long term health of the EU as it has done nothing for no one and guarantees a burst bubble down the road. On top of that, they continue to screw their savers.
Speaking of negative rates, we wish the president would lock it up on jawboning the fed. There is a reason why other countries have negative rates. They are basket cases. Yes, with $1 trillion deficits, we are also a basket case but less so. The president needs to be very careful with his words. He railed against Obama and Bernake for their 0% rates and their printing of money. Quite interesting to see the change of stance once you are running for re-election.
Will have our thoughts on the latest debate over the weekend as we have yet to watch most of it. Somehow, we will get through the 3 hours of socialist nonsense.
The changing of the guard we have been writing about made itself felt even more yesterday. For almost a year, it was easy to tell you to avoid foreign markets, value, commodities, transports, small caps, mid caps and oils. They are now coming on like gangbusters. A ton of stuff that have been sitting at new yearly lows have jumped. Normally, we would tell you this is not good news but so far, it is only good news as the only area suffering is the high growth names. We have told you they look to be done for now, notwithstanding vicious bounces which we could get at any moment.
Charts have shown growth versus value were at the most extreme levels in ages. This looks to be a narrowing of that extreme.
Overnight, the president changed his mind for the 50th time on tariffs which had futures moving before giving some back. And now, the ECB is going to print more money and buy bonds as well as lower rates. Yes…they are doing this even though rates are negative. So screw the savers and do something that will not help your economy one iota. Maybe you want to think about lowering taxes, lowering burdens and getting the size of government and the hand of government out of the way in order to get things going. Instead…CONTINUE TO DO WHAT HASNT WORKED. Just ask Japan.
Our main thought on 9/11 is not only to never forget but know there are others that would do the same. It tells you how fantastic our security apparatus is.
What you have just seen in the past 2-3 days is the largest 2-3 days reallocation from momentum to value we have seen in ages. We started to alert to this this past weekend but it has really picked up this week. Many momentum growth names are down 5-15% and even more in the past two days while a ton of stocks on the new yearly low list have seen their stocks soar off the lows. This is a shift long overdue as the chart of growth versus value had gone to extremes to the growth side.
So…we continue to believe:
Bonds have put in a near term top…if not more. The last move in bonds felt somewhat climactic in where we found $18 trillion of bonds yielding negative. The 10 year has backed up from 1.45% to 1.74% in short order. This, more than likely, takes a 1/2 point cut off the table.
Oil prices and oil stocks look to have put in a decent bottom. Remember, this is a commodity that gets moved by geopolitics but for now, looks like money flows are moving into this area. The same goes for commodity-types.
Other areas that were comatose and have now woke up are the small and mid-caps, cyclicals, many foreign markets, transports and very simply, the worst acting stocks in the market (supposed value). We do not know how long this lasts or how far it goes but suggest this may not be a few day affair.
The big 4 indices remain above the 50 day. This is vital going forward. The SOX remains above the 50 day. This is vital going forward. Because of the back-up in rates, financials have finally woke up as spreads widen. This is also vital for the markets going forward. If anything changes, we will let you know.
Normally, when the leading growth groups get slammed…and the word “slammed” is being nice, it would mean a death knell for the markets overall. But so far, this is just vicious rotation. Pay heed as what worked so well for so long is now biting back.
Lastly, President Trump is out this morning calling for negative rates from the fed as well as more printing of money. This comes from a president that railed against the easy money of the Obama/Bernanke era. You obviously know what we think of this.