We told you to sell US stocks last November 10, when the Dow Jones Industrial Average traded 13% above today’s close. If you haven’t, sell now. If you have to buy something, buy emerging markets, which actually gained today while US stocks crashed.
But don’t be in a hurry. As Morgan Stanley’s chief equity strategist Michael Wilson told CNBC, it will take quarters, not weeks, to restore confidence in a market that has been battered by trade war, galloping deflation, shrinking world trade, challenged Chinese growth, and political malfunction in Washington, London, Rome, Brussels and other capitals.
The Dow Jones Industrial Average fell 670 points, or 2.7%, before closing down 2%.
After the worst December for US stocks since 1931, don’t expect investors to start bottom-feeding until the new year. Too many things can go wrong, for example:
- West Texas crude at $46 per barrel raises fears of deflation
- The Federal Reserve thinks that inflation risk is “symmetrical,” which means it needs to raise rates to contain the prospect of inflation just while the bottom is falling out for parts of the global price structure
- The “tech war, not a trade war” escalated by another ratchet-turn today when the US Justice Department denounced China as a habitual technology thief
- European bank stocks fell to their lowest level since middle of 2016 after the Federal Reserve raised US interest rates. They owe about $12 trillion in US dollar liabilities and face a balance sheet squeeze as dollar financial conditions tighten
- President Trump threatened to shut down the government after Congress failed to fund his proposed wall on America’s border with Mexico
- Trump meanwhile faces a set of legal challenges that might paralyze his presidency
Every major sector of the S&P 500 fell. The one notable gainer was the emerging markets equity ETF (ticker EEM), up by over 1% just before the market close. That’s remarkable, for two reasons. First, some major components of the emerging markets index trade with oil (for example Russia, down almost 5% today). Second, emerging markets usually get pneumonia when the S&P sneezes. All the air has been let out of emerging markets, which led world equity markets down earlier this year. The forward-looking price earnings ratio for EEM is just 10x now, vs. 15x for the S&P 500. Price to cash flow for EEM is just 7x, compared to nearly 18x for the S&P 500. In a world where cash is king, emerging market stocks throw off more than twice as much cash for the price as the American index.
Emerging markets, meanwhile, are no riskier than the S&P 500. The Chart of the Day below shows the cost of hedging EEM in the options market vs. the cost of hedging the S&P 500. That’s the implied volatility on EEM options vs. the VIX index of S&P 500 options. So: double the cash flow for the price, at the same level of risk.
Wednesday’s returns by country are shown below. Oil-dependent Russia was the worst, Brazil with a new free-market government is the best.
Russia | -4.6% |
Nigeria | -0.6% |
China | -0.1% |
S.Africa | 0.0% |
Pakistan | 0.1% |
Poland | 0.6% |
Non-Japan Asia | 0.6% |
Peru | 0.7% |
Taiwan | 0.9% |
EM Index | 1.0% |
Indonesia | 1.1% |
Malaysia | 1.1% |
S.Korea | 1.2% |
Turkey | 1.5% |
Thailand | 1.6% |
India | 2.0% |
Philippines | 2.1% |
Mexico | 2.1% |
Brazil | 2.2% |
Are you saying that Trump is working for Israel?
Are you saying that Trump is working for Israel?
@Mr. Spengler, Goldman or whatever Mossad designation you have, 4 months ago, I mentioned to you that Dow will come down to 22000 by end of the year due to US policies that are influenced by Israel and US withdrawal from the JCPOA and you laughed at that idea and considered Iran too small to make any impact on US economy….
Look, Chinese trade war has gone to higher gear because of arrest of Huawei executive for dealing with Iran. Again, should I remind you who is pushing those buttons?
US has lost $600 Billion or more in lost trade deals with Iran and according to some estimates, 100,000 jobs.
The whole reason that US can not stand up to China or Russia is that they need to get Iran on their side as that was what Obama was trying to accomplish. Without Iran, US will be checkmate by Russia and China. With cooperating with Iran,
They can cut off China’s road and belt initiative and choke off Russias influence in Syria and Central Asia and bring them to their needs as Iran can supply entire Europe with natural gas and oil.
What US lacks is Brzezinski’s brilliance who knew that Israel has become a huge liability. Whether you like it or not, this is the fact.
@Mr. Spengler, Goldman or whatever Mossad designation you have, 4 months ago, I mentioned to you that Dow will come down to 22000 by end of the year due to US policies that are influenced by Israel and US withdrawal from the JCPOA and you laughed at that idea and considered Iran too small to make any impact on US economy….
Look, Chinese trade war has gone to higher gear because of arrest of Huawei executive for dealing with Iran. Again, should I remind you who is pushing those buttons?
US has lost $600 Billion or more in lost trade deals with Iran and according to some estimates, 100,000 jobs.
The whole reason that US can not stand up to China or Russia is that they need to get Iran on their side as that was what Obama was trying to accomplish. Without Iran, US will be checkmate by Russia and China. With cooperating with Iran,
They can cut off China’s road and belt initiative and choke off Russias influence in Syria and Central Asia and bring them to their needs as Iran can supply entire Europe with natural gas and oil.
What US lacks is Brzezinski’s brilliance who knew that Israel has become a huge liability. Whether you like it or not, this is the fact.
The puff is spent. The hot air balloon is punctured. Remember it’s not the free fall that hurts, it’s the sudden stop. Hhehehe…
In the culture of pirates/predators, there are always perpetual wars, war on cancer, war on drugs, war on obesity, every fvcking thing is a fvcking war. U must include the fvck in this mentality. hahaha
In the culture of pirates/predators, there are always perpetual wars, war on cancer, war on drugs, war on obesity, every fvcking thing is a fvcking war. U must include the fvck in this mentality. hahaha
No expansionist power runs back to it’s home base unless it happens to encounter something that scares the shit out of it.
AT – please disclose the author of this article. I can’t stop laughing.
AT – please disclose the author of this article. I can’t stop laughing.
The US picked the wrong war, a war that hurt itself as much as others, if not more.
If there is ever a war to fight, that would be the war against egotism within the US mentality.
The US picked the wrong war, a war that hurt itself as much as others, if not more.
If there is ever a war to fight, that would be the war against egotism within the US mentality.