Morning Market Thoughts
Good morning. Janet Yellen speaks this morning and will say that the Fed sees a stronger case for a hike in rates. We’re seeing bond yield continue to run higher, and I read an interesting article on Zerohedge about the power behind the selloff in bonds. Since last July, sovereign wealth funds, central banks, Saudi Arabia, China, and a host of other large bond investors have been selling their bonds at a pretty alarming rate. This is largely due to a need to raise cash to deal with their own problems at home. So, to my knowledge, there is nothing nefarious about it (though the nature of nefarious actions of this kind are typically done under a pretense of innocence, right. Soooo…who knows for sure??)But the result of that selling is doing three things: First, shoring up the financial obligations of the sellers. Second, causing a 70% jump in yields since early July. And third, sparking the obvious question — who is taking the other side of the trade…because we know the Fed is not. The answer to that last one? Most likely the retail investor crowd is buying these bonds because they feel a 2.2% yield is a smoking hot deal.
But if inflation does rear its ugly head, that 2.2% is going to be small consolation to bond holders.
And might inflation be on the horizon? Well, if we take a look at the spike in the Baltic Dry Index, and the accompanying spike in shipping stocks, it stands to reason that the market thinks that the cost of transporting raw materials will rise, and that certainly will result in higher prices at the cash register.
In my opinion, this is not a bad scenario for a Fed wishing to hike rates, particularly since the Fed is of a mind that the economy is growing nicely.
So watch how bond yields fare over the next few weeks. Over the past week or so, we have seen some very dramatic shifts in some sectors. Financials, bond yields, metals and mining, transportation, etc.
When you decide to buy a stock, make sure you know exactly why you are buying it, and what your profit target is. Do you have justification for the price target? Where could the stock fall back to before you would even see whether prior support will still hold? You want the former to be as far away as possible, and the latter to be sitting smack dab under the current price of the stock…so your stop can sit right under support.
The market is choppy right now, but I believe the next move will be higher. Looking forward and wondering whether any of the anticipated policies will actually support a rising market is something I can’t do. Nobody really can. The structural problems remain. Only the sentiment and rhetoric have changed. The market, at this point, is moving on sentiment, rhetoric, and anticipation of better times. If the market is correct in its anticipation, stocks will continue to move higher for quite a while. If it is not, then we will see markets rolling over and giving us some opportunities to sell/short stocks.
Shorting into a strong market is not where you want to be. But shorting into a market that is under distribution is exactly where you want to be. We will watch for any changes in market dynamics of accumulation v. distribution. But for now, the money seems to be pushing equity prices higher (though I’m hoping for a day or 2 of rest before people start going nuts again).
Don’t forget about tonight’s chat at 5 pm PT, 8 pm ET. I’ll open it up with a “strategy session”, and then we’ll discuss things and I want to get as many questions from you as possible. When I know what you are thinking, it helps me to do a better job in meeting my responsibilities to make you successful.
See you in the forum.
Dan
My only point
accompanied by presupposes that no one knows anything about the nefarious thing)
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