WASHINGTON, April 4, 2013 — We experienced one of our rare no-show columns yesterday as the Maven battled The Stock Market From Hades, managing to pull the portfolios’ collective fat out of the fire for the most part by taking a few nasty losses. Cleanup concluded this morning. The Maven had made two mistakes and doesn’t mind sharing, as Mr. Market’s Kollege of Moneymaking Knowledge is constantly offering courses for improvement, with tuition generally paid not via check but via losses.
The financial media will tell you that yesterday’s market drubbing was mostly due to more and badder saber-rattling emanating from the chubby, spoiled punk who’s currently and allegedly in charge of the over half-century old North Korean Kim-chee Kommie Kleptocracy Kombine. The latest edition Dear Leader has apparently drawn up a plan to nuke the U.S., maybe back to the Stone Age and probably by tomorrow if we don’t give him some of his favorite candy. Right now.
At any rate, that’s the reason the financial media gave for yesterday’s downside hissy-fit as pretty much every stock sector took a hit. Likely, these days, the punditocracy is largely right, since the HFTs trade only off headlines, and the North Korean kabuki drama didn’t play well in the algorithm sandbox.
That said, employment reports both yesterday and this morning were anemic in the U.S., and Europe continues to twist slowly in the wind, waiting for the next batch of holes in their economic dike without nearly enough Little Dutch Boys at hand to patch them all.
So our defensive stocks and European ETF shorts should have worked yesterday and this morning, right? Wrong! REITs continue to get relentlessly hammered, and yesterday was quite bad. Apparently, the machines have fallen out of love with them, so down they went, way-above-average yields and all. That particular swoon persists into today’s market, and sensing at least a short term trend, we’ve dumped all our REITs except for Invesco (IVR) and Aviva REIT, which is the new IPO healthcare facility REIT our broker has induced us to hold for at least 30 days. IVR is still holding its own while Aviva (AVIV) is still up considerably from its IPO price.
Anything that smacks of commodities right now, we’ve also dumped, including the remainder of our MLPs, refining stocks like Marathon Petroleum (MPC) and anything that looks commodity-oriented.
What’s weird is that the Euro-centered ETF shorts should have worked as the Euro has weakened somewhat while their stock market is moribund. But guess what? The shorts all went against us. Ditto gold, a small amount of which we held via gold ETF IAU sort of as an insurance policy against the North Korean Kimchee Brigade. No matter that gold traditionally has gone up when bad guys start rattling their virtual sabers. Not this time. Gold continues to tank. Looks like it’s just another commodity now.
Ditto the oil patch, which we’d still been participating in via ETFs and a couple of refineries. BZZT! Wrong Answer. Oil has already dribbled down from near $100 bbl. Last week to roughly $92 bbl. This morning for West Texas intermediate, a tremendous drop that’s big enough to be reflected in the pump when refineries eventually remember to lower the pump price by a penny or two. So oil isn’t working either, even though that’s another thing that tends to spike when international thugs are yelling and screaming “Nukes!” in a crowded international theater.
Weirder still is what’s started working. Bonds. That seems counterintuitive since the Fed is buying up so much of this paper that interest rates remain near zero. The Fed’s whole idea is to force us to buy stocks for capital gains and yield, but this week that tactic’s been stumbling. Bonds are actually getting stronger, despite the lousy yield. ETFs that cover TIPs and mid-range treasurys and other decent quality bonds—and ETFs that invest in junk for that matter—have all held up well this week while stocks got schmeissed. Go figure.
Some say that many balanced funds are rebalancing this month by selling off stocks in favor of bonds because those are the rules that such funds play by. But it’s really hard to tell at this juncture.
In other words, everything a trading system is meant to cover has failed this week, not only for the Maven but for pretty much everyone else except those holding all their money in moneymarket funds.
So we’ve just bailed—a lot—and will sit around for a while. We’d hoped to catch the last pre-Sell-in-May-and-Go-Away rally. But maybe that already happened in March. Instead, we may have gotten caught with our metaphorical pants down instead. Fortunately, we didn’t lose much. But being competitive, the Maven and his elves hate to lose anything at all.
We’ll sit tight and see if Mr. Market will give us a tell today or tomorrow. In the meantime, keep stocking your fallout shelters. If the Dear Leader doesn’t get you, than maybe Wall Street will.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
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Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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