Global Sell-Off Underway: New Questions Facing the Markets
By Jeff Macke | Breakout – 1 hour 53 minutes ago
With U.S. markets tumbling on both the rumors and the news of the resolution, it's time to look ahead and ask the new questions facing the markets:
*Is a recession getting baked into stocks?
*Is QE3 stimulus now coming sooner rather than later?
*Where can investors 'hide out' until the wave of selling subsides?
To help us come up with some best-guesses, if not answers to these questions, Breakout welcomed Todd Schoenberger, Managing Director at LandColt Trading LLC. Schoenberger has done the research on recessions past and has some firm, if disturbing observations on the economy. "Go back to 1948" he says, "anytime we dip below 2% in this country we always end up in recession 2 - 3 quarters later." Given that GDP is coming in below 1% with little reason to expect that number to be meaningfully higher in the near-term, a recession is fait accompli, if not already underway.
While stocks don't issue press releases announcing their collective economic opinion, the 8% (and counting) drop in the S&P since July 22nd suggests traders are fully aware of the economy's downturn. For better or ill every slump in the economy for the last 5 years or more has been met with aggressive stimulus. Couldn't traders expect the market to quickly digest the consensus view of a recession and anticipate another round of stock-friendly money printing?
Schoenberger says the "reactionary" Fed is going to wait for things to get even worse. He thinks Dr. Ben and Co. will hold their fire until late in the 4th quarter or even 2012. While QE2 was a boon for stocks, the tape doesn't look ready to rally in anticipation of an event 6-months from now.
Since Nesto, Schoenberger, and I had managed to piece together a somewhat bleak consensus view of the near-term, only one question remained: What on earth can investors do now? 10-year Treasuries, dividend plays and China plays, says Schoenberger. He likes Philip Morris International (
PM) and McDonalds (
MCD) for dividends and International exposure. Alluding to Philip Morris and McDonald's strong balance sheets and revenues from overseas, Schoenberger opines that "there's no risk of that dividend" getting cut.
As pep talks go, Schoenberger didn't have much to offer but he seemed to make up for it with insight. We are in the midst of a global sell-off after all.
(As almost all of you know, I'm long McDonalds. Strictly in the name of disclosure, and not as advice of any sort, I added a tiny bit (5%) to my position yesterday. Market support levels are disintegrating as I type. At the moment I'm more excited about seeing the Smurf movie than I am about stocks. My thought yesterday was that I've had a lot of cash, along with MCD and Gold, since the S&P's failed breakout in early May. I want to start putting that money to work in baby steps as the market crumbles. Again, I'm just disclosing. This is NOT advice. )
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