I know that this is the ASX Today thread, and today was a particularly sanguine day on the ASX, but I'm more interested in the ASX tomorrow.
As I write this (I checked these numbers at roughly 1615 hours AET; 2315 on 4 August, where I am), the futures of almost all of the European indices are down more than 1%, some more than 2%, the DOW Futures are down 444 points (1.1%) and the NASDAQ Futures are down 1,007 points, or 5.4%. Clearly, there is a bit more pain in the near term.
What concerns me even more than all the red on the right side of the screen while I watch Bloomberg, this evening, is that Warren Buffett has recently sold large chunks of both Apple and Bank of America stock. These are among his core holdings, and he's selling at a huge profit. That may SOUND great, but he's already sitting on a massive pile of cash (U$277B; it's so staggering, several media outlets have incorrectly reported it as U$277M), so he doesn't need it, even to take a new position. It also means that Berkshire Hathaway will have to pay tax on the capital gains, and he's losing the dividends both stocks pay, and he's known to be a BIG fan of dividends.
There are two signals in the US economy which are nearly failsafe in predicting recessions. The first is the Saum Rule, which states that when the three month moving average (3MMA) of the US unemployment rate is at least half a point above the lowest 3MMA in the past 12 months, that indicates that a recession is already starting. Since 1950, it's predicted 11 recessions (remember, this indicates that we're already in the early months of a recession). It was correct nine times, it was five months early another time (1959), and only once, in 1969, was it incorrect.
The second concerning predictor is the inverted 2/10 yield. While many people, including some economists, state that an inverted 2/10 yield almost always predicts a recession, it's the timing that concerns me. Recessions don't normally start when the curve becomes inverted, they tend to commence when the curve turns back to positive. The curve has been inverted for more than two years, now (since early July), whereas the previous record for an inverted 2/10 yield curve was 624 days, ending back in 1978, during the miserable Carter Presidency. Again, as I write this, the separation has closed from more than a full percentage point earlier this year to just 2.76 basis points, and could turn positive at any time.
What's even more concerning to me than those two EXTREMELY accurate predictors is how quickly "analysts" and "traders" (for at least half of them, read "corporate algorithms") have changed their sentiments, drastically. It's hard to imagine that only a week ago, the prediction for the FEd was that they'll finally reduce interest rates by 0.25% in September, and would probably have a second 0.25% cut by year's end. In a week, that's gone to cutting each of the next three meetings (there are only three left for the calendar year) and they're talking about 0.5% rate cuts for two or all three. I know that doesn't sound like a lot to the uninformed, but that is a massive change in Fed policy (funny thing is, the Fed isn't saying anything of the sort).
Just look at Asia. I know that ASX dropped by 3.7%, today, and that's big, but in Taipei the Taiex was down 8.4%, it's worst day since 1967, and in Japan, the Nikkei dropped 12.4%.....think about that, the third largest economy in the world saw it's main bourse drop 12.4% in one day.
It's not the best macro environment to be investing in equities, at the moment unless you're looking at dividend-paying firms or have a long term view. Of course, if you have cash and a longer term timeline, there a "For Sale" out, and I think that the discounts are only going to get bigger in the near term.
Regards, and good luck to all!
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