As a short seller by trade, I end up reading. A lot.
I’m constantly scouring press releases, earnings statements, balance sheets – you name it. If there’s a red flag and management is doing something to tweak its bottom line, I want to know.
But short selling isn’t the only way you can turn a profit when a stock or asset is going down.
You can put money in an inverse ETF. You can sell put options. You can even practice some good old fashioned patience and wait for a stock to bottom, then pick it up at a reduced price.
It’s just that, what I do is more fun.
There’s something truly satisfying when you catch a company “red-handed” and sticking its greedy paws in the cookie jar.
The funny part is, nothing I read is sealed behind closed doors. Financial statements are available to everybody. They just have to actually read them.
Unfortunately, people focus on the headlines and not the details.
Last week there was a “home run” jobs report that blew away Wall Street’s expectations. The unemployment rate now stands at about 5%, which in economics 101 is full employment.
Sounds great right? Well, under the covers of the jobs report things aren’t that wonderful.
Most of the jobs created were for people 55 years or older. The younger workers who support the economy and its future saw its employment ranks shrink.
What’s worse is over the past several years the labor force participation rate has continued to drop. It’s at about levels seen in 1977. Fewer and fewer people are picking up the slack to help propel the economy forward.
Given this “great” report, we have a few things in store for us…
For one – and most obviously – it’s now much more likely that the Federal Reserve will raise interest rates in December.
That doesn’t bode well for stocks.
The stock market has been on edge every time quantitative easing has been reduced in the past five years.
Now, it will be on edge every time the Federal Reserve makes any sort of indication as to the pace of additional rate increases.
I am dreading that! The fundamentals continue to deteriorate. Revenue and earnings are getting pinched. The U.S. stock market is way overvalued.
A strong U.S. dollar, which could get much stronger, won’t help. Our new normal will be anything but the normal times we experienced in the past.
I long for the days of 2003 to 2007 when the stocks of companies doing well went up, and the stocks of companies faring poorly went down, even as the overall market pushed higher. It was a period of unprecedented low volatility. Things made sense.
You can forget that!
Now, we are likely to see much more volatility, and fast, sharp nosedives in stock prices.
When the unexpected comes, holding stocks will be like a hot potato. Investors will be quick to pass shares off to the next person hoping they’ll be the ones caught with the big decline.
Buckle up; the wild ride is going to continue!
John Del Vecchio
Editor, Forensic Investor
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