To Catch a Falling Knife

As the markets try to determine where the market bottom is, opportunities are popping up to take advantage of the volatility domestically and internationally. Here are a bunch of areas investors will be monitoring for a bottom.

Oil: One of the big drivers of the markets is oil which recently has been hitting 13 year lows. Geo political issues come to the forefront as countries refuse to give up market share and an overabundance of supply keeps driving the price lower. What we are seeing from an investor standpoint opportunity is energy companies are closing down oil rigs but sustaining their dividend. Schlumberger fired 10,000 employees but announced a share buyback and the dividend staying put. The stock also rallied on the news. The drop in stock prices is creating a unique opportunity of a significant dividend yield for investors with a medium - long term holding period. As energy companies stock continue to drop, but the nice dividend stays put, investors may try to time a bottom to take advantage of the substantial dividend.

Globally, we are seeing sovereign wealth funds have to sell their positions to pay for their countries deficits since they operate their budgets at a much higher oil price point. This has been an adverse effect on their nations economies and their exchanges. Investors can buy ETF’s that try to mirror a nations exchange whether bullish or bearish. This can also be done with commodity ETF’s such as an oil ETF and timing of the bottom and even a small rebound can pay out nicely.    

  

China: In my mind, China is a ticking time bomb after seeing first hand what the Communist Party has done to that country. To expand at an aggressive clip, cities and buildings were built, but nobody lives in them. In 2010, I went to a 5 story mall comparable to a Mall of America in Beijing with my dad and we were the only people walking around it at 4 in the afternoon. Now with their engine slowing down, the years of accumulating debt and buying up US Treasury’s is going to have substantial effect on their economy. After the Shanghai composite hit a high of over 5,000 in July, it finished the year over 45% lower. Since January, the Shanghai index is down another 25%. Almost on a daily basis, any economic indicator coming out of China has shown condensing month after month. The People’s Bank of China keeps putting in safeguards to protect their markets but it hasn’t stopped the rush of money out of the country. Investors will continue to try to time China’s rebound or in my opinion, see how far down the rabbit hole China is going to go.

Japanese Banks: A few weeks ago, the Bank of Japan lowered interest rates to negative yields for the first time in the country’s history. Negative interest rates have adverse effects on an economy even though the point of the move is to stimulate the economy. We have seen central banks in Europe push rates to NIRPS (Negative interest rates) and in doing so have really hurt financial companies in Europe. They are down 40% since Mario Draghi initiated negative interest rates. With Japan going the way of NIRP’s, investors may want to short financials as history tends to repeat itself. Investors may also want to invest in companies that make safes. As Japan has seen since the move, consumers would rather put their money in a safe getting 0% interest than have the bank charge them for holding it.