Flu Season Hits Stock Markets Worldwide, but Don't Panic

By Lloyd Khaner  FEB 05, 2014 9:50 AM

What does an investor do when global economies become sick and contagious?

 


There is an old saying that when America gets a cold, the rest of the world gets pneumonia. Seems that's been turned on its head somewhat as now the emerging markets have caught pneumonia and America, along with other developed markets, have colds. Moreover, it's starting to feel like America has a bad cold.

What started the global equity downturn that has left the Nikkei (INDEXNIKKEI:NI225) down over 10% and the Dow (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX), and Nasdaq (INDEXNASDAQ:.IXIC) possibly heading for their first correction since 2012?

Liquidity, a.k.a availability of money.

The three-punch combination of a) Federal Reserve tapering and b) fear of a growth slowdown in China and the US and c) instability in some developing nations caused investors to pull their money out of emerging market countries. These moves sent the currencies -- money, to you and me -- of these emerging markets tumbling down which can be a bad thing. Long answer to a short question.

The short answer to the question is that the economic world is suffering from some financial contagion. Some emerging market countries are pretty sick -- think Brazil, Indonesia, South Africa, Turkey, Thailand, and Argentina -- and they are sharing their germs with the rest of the world.

We suddenly are back up to 20 worries on the Wall and we may head higher depending on when some antibiotics are passed out to the sick countries of the world, if ever. In the meantime, don't panic. Panicking never helps. Hand-washing helps. In this case, that means making sure you know what stocks you're buying and waiting to buy them at a price that accounts for some world uncertainty.

Here's a quick look at the worries facing stock market investors. Click on the image below for an interactive version of this week's Wall of Worry, or scroll down for the text-only version and an explanation of how the Wall works.


QE: "So long, farewell, auf Wiedersehen, adieu!"

UNEMPLOYMENT: France's unemployment rate seems to be stabilizing...as it hits a new record high of 11.1%. Soupir...

INVESTOR SENTIMENT: Happy New Year!...not.

EUROPEAN ECONOMY: The world is counting on you this year to put some economic growth up on the scoreboard. Maybe the word "praying" is more accurate.

HIGH-FREQUENCY TRADING:

Lloyd: HFT volumes surging in currency trading.
HAL: Who needs stocks when you can trade currencies around the clock?
Lloyd: I hear you, but stocks are bought with currencies.
HAL: Sixty-four-ounce bottle of bummer for you.
Lloyd: Appreciate the empathy.

CHINA: Woah, woah now, as its stock market is closed until February 7 to welcome and celebrate the Year of the Horse. Great timing.

EXTENDED UNEMPLOYMENT BENEFITS: "Although we've come to the end of the road, still I can't let go, it's unnatural, you belong to me, I belong to you...."

BONDS: Making a resurgence as a viable asset class, though no one will admit buying or holding them.

RETAIL SPENDING: Hearing rumors of tumbleweeds rolling through indoor malls across America.

CONGRESS: See entry for "Debt Ceiling" and do something now!

US ECONOMY: The Ayes don't have it as the PMI and the ISM hit the skids.

ECB: "Under pressure, under pressure, pressure..." to add liquidity to the eurozone with monetary stimulus.

DEBT CEILING: Signed, sealed, but yet to be delivered.

EARNINGS SEASON: Uninspiring. But then again, what isn't nowadays?

EMERGING MARKETS: "Sending out an SOS to the world..."

CURRENCIES: Raising interest rates in Turkey and India to the chant, "Defense! Defense!"

MINIMUM WAGE INCREASE: If it happens it may take a bit out of corporate bottom lines and it may not. Might as well fret about it until we know for sure.

VOLATILITY: I'm baaaaack...

PRIVATE PAYROLLS: The big number to be heard 'round the world coming this Friday at 8:30 a.m. EST/5:30 a.m. PST; 10:30 p.m. in Tokyo; 9:30 p.m. in Beijing; 2:30 p.m. in Paris...

ARGENTINA: Don't want to be a pest but with your economic crisis, monetary crisis, and political crisis, you might want to have your president comment, put out a press release, send up a flare to the rest of the world, on how things are going?


What Is Lloyd's Wall of Worry?
By Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market
action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
Positions in SPY, DIA, QQQ, GLD, TBF, VGK, FEZ, EUO.

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