Thursday, August 18, 2011
The perfect storm
Horrific economic data along with more bad news from Europe sent the markets reeling today down some 420 pts at the close. The Philly Fed business activity index came in much worse than expected registering a -30.7 on expectations of +3. This was the worst reading since the height of the recession in March 2009. Weekly jobless claims also came in worse than expected rising 9000 to 408000 and sales of existing homes fell 3.5%. Morgan Stanley also warned that the world economy was "dangerously close to a recession" and revised their global growth forecast downward. Adding fuel to the fire was a report that the NY Fed is going to investigate European banks US subsidiaries. More bad news included hotter than expected inflation. It seems we could be starting the next leg down in stock prices.
I believe the market at these levels is pricing in a mild recession. Small cap stocks are already in bear market territory down some 25%. It is too late to sell small caps. Quality large cap stocks have been cheap all along and are probably the place to be at this time. Stocks such as MCD, KO, PEP, JNJ, WMT, IBM, AAPL, MSFT and PG are cheap enough to provide some downside protection. Fixed income CEFs, dividend paying stocks, MREITS and MLPs also are a good place to hide out. Fixed income should be a great place to be for years especially with rates staying low through at least 2013 and probably much longer. I remember a few months back everyone was asking "is there a bond bubble?" LOL... boy was that funny, get everyone to sell their bonds and buy stocks just in time for the bottom to drop out of the stock market and bonds to skyrocket.
I had raised my stop on AAPL yesterday as I saw futures weaken last night. Unfortunately, the price gapped right through my stop this morning so I ended up selling on the open for a small profit even though my stop was 5 dollars higher. So I am left with NLY only in my trading account and 75% cash.
Disclosure: Long NLY