I never imagined that I would see the day when “yen trading” would be talked about in the monetary news. But here we are.
We talked about this setup and how it caused the Aug. 5 stock market crash in Monday’s article. Today we’re going to talk about what all of this means for closed budgets (CEFs), adding the opportunities we now have in those high-yield budgets.
First, while the press is quick to describe the correction as a “made in Japan” event, we are seeing some symptoms of a slowdown in the United States.
The chart above is an indication of the Sahm rule, another detail that was once difficult to understand (see the topic here?) and is now mainstream. Readers of my CEF Insider service will recognize this, as we talked about it last year as an indicator of an impending recession.
The short edit is that if the upper blue line rises above 0. 5, as it has been lately (see right in the chart above), the chances of a recession within the next year increase. That’s because the rule is based on unemployment trends: a higher number indicates expanding unemployment, a vicious cycle that produces a recession.
Or at least that’s how it has been in the past. This is why those peaks and the gray spaces on the graph (which measure US recessions) are so strongly correlated. So, with the indicator now above 0. 5, are we headed for a recession?
Torsten Sløk, lead economist at Apollo Global Management (one of the world’s largest venture capital and personal equity fund managers), doesn’t think so. Here’s why:
Visa Applications
His explanation boils down to a backlog in the processing of cadre visas. Sløk writes: “The explanation for why the unemployment rate is surging is possibly due to the fact that the government is sorting out the backlog in COVID-related visa applications. which increases the source of labor. “
This would mean that due to those pending work visa applications, more people would have to be counted on to work, while there would be no replacement in the number of other people running until the visa application procedure is finished and the user gets a task or refuses. In both cases, the transitory variation in the unemployment rate disappears.
Let’s be honest: this is all a bit complicated. Is that what is happening here?One thing we can be sure of is that anything that happens in the hard-work market doesn’t hurt the sales of American companies.
U. S. earnings growth
As you can see, the expansion of sales of the S
In short, my bullish view of stocks has changed, but recent volatility has made it more complicated to schedule a stock purchase.
It is true that stocks rose considerably throughout the year: 12% for the S.
Market crash in July
The NASDAQ (whose benchmark ETF is in orange above) fell more than 10% and the volatility we saw in this era increased at the highest pace since the pandemic. It was even more serious than the currency crisis of 2008/2009.
This chart only shows the opening and ending prices, so it’s hard to see precisely how dramatic it was, but explain it this way: at its lowest point, the sell-off, the stock erased all of its gains since Jan. 19. unusual.
So, of course, the market has begun to head in the opposite direction, with shares already back to their mid-May levels at the time of writing.
Of course, the variety of inventory in such a volatile time is a challenge. That’s why we prefer to buy CEF strategically with a reduction in big sales like those.
I’ve written a lot over the past few years about CEF relief and it’s still true today.
The Gabelli Dividend & Income Fund (GDV), for example, enjoys a 14. 2% reduction in its net asset price (NAV, or its share price) and a 5. 8% dividend yield. It also owns a solid mix of price-oriented giant and small stocks. Mastercard (MA), American Express (AXP), and Eli Lilly & Co. (LLY) are the most sensible holdings.
This reduction is especially important now because GDV’s market value has long followed the iShares S&P 500 Value ETF (IVE), a benchmark for the fund, broadly speaking. But over the past two years, a lack of investor enthusiasm has caused GDV to lag behind.
This is a hotspot for savvy mavericks, and what’s going on here isn’t unique to GDV. Higher volatility makes many stock CEFs less expensive compared to the market price, even as their underlying assets continue to grow. If this volatility continues, CEF investors who reinvest their gigantic dividends will also reap advantages from issues of adequate access in the future.
Michael Foster is a senior research analyst at Contrarian Outlook. For ideas on more attractive sources of income, click here to read our most recent report “Indestructible Income: Five Funds with Stable 10% Dividends. “
Disclosure: None
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