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Axel Merk: 'We Haven't Seen Anything Yet'

Axel Merk: 'We Haven't Seen Anything Yet'

By    |   Monday, 24 August 2015 10:00 AM

Axel Merk, president of Merk Investments and a Newsmax Finance Insider, says the decline in U.S. equity markets, especially in the S&P 500 index, lacked panic.

Rather, he thinks the sell-off is “too orderly,” lacking the bounce backs that would normally accompany true panic selling. He says this is fine with him, because he is short the markets.

When CNBC’s Martin Soong asked what “true capitulation” would look like, Merk responded, “We haven’t seen anything yet.”

Whereas investors have been buying dips, in true capitulation there are no bids on dips, as opposed to the prevailing FOMO (Fear of Missing Out). He concludes that if the decline doesn’t reach 20%-30% from the peak, “I will be very surprised.”

Merk was interviewed before US markets opened.

U.S. stock markets plunged in early trading Monday following a big drop in Chinese stocks, the AP reported. The Dow Jones industrial average fell more than 1,000 points in early trading and the Standard & Poor's 500 index fell into correction territory, that's Wall Street jargon for a drop of 10 percent or more from a recent peak.

Anticipation regarding the pending market open was so great that CNBC broadcast a special program Sunday evening, although it went off the air before China actually opened at 9:30 pm.

Deborah Fuhr, Managing Partner at ETFGI, calls last week’s action in the U.S. a “normal correction,” given that weaknesses were evident “for a couple of months now, and the price of oil has really driven people to react.”

In response to a question from Sri Jegarajah as to the case for ETFs linked to U.S. stocks, Fuhr said many investors were choosing to use “inverse ETFs” linked to various market segments.

She observes that some investors think this is a correction, whereas others think it may be more, as least this week.

Also, some investors are looking to gold on the theory that if the Fed doesn’t raise rates, this will indicate that “global growth isn’t where it should be.”

This writer would add that such a move would treat bad news as bad news, but perhaps investors will treat it as good news, because Wall Street doesn’t want the Fed to take even token action to raise rates.

However, those who may attribute the inaction to the selloff in China will be wrong; the Fed, mindful of the coming election, was not going to act anyway. Fuhr noted, as many have, that market action is affected by the absence of many vacationers.

David Deitze, President and Chief Investment Strategist at Point View Wealth Management, calls the pending correction “long overdue” and says, “Values look a lot better in the context of the Treasury yield now firmly below the S&P 500 yield. This may well be the correction that refreshes for another leg up at some point.”

He also thinks the Fed will hold off raising interest rates until at least December, as this writer thinks it would have done anyway.

Speculation is building over what Fed Vice Chair Stanley Fischer will say at Jackson Hole on Saturday, which Chair Yellen will not attend.

Clive McDonnell, Head of Equity Strategy at Standard Chartered, thinks that China has “a lot of room” to cut both reserve requirements and interest rates to support its markets by its own QE and even to allocate $87 billion of pension funds to equities.

McDonnell sees the current volatility as normal in anticipation of a Fed rate hike.

A somewhat more bearish view of China comes from legendary contrarian Jim Chanos, President of Kynikos Associates, who has been hedged, “but some of the negative areas finally seem to be working,” citing energy, “some for the right reasons, some for the wrong reasons.”

As for China, Chanos quipped, “It’s worse than you think; whatever you think, it’s worse. The biggest lesson of the last three months is that people are finally starting to realize that the Chinese government is not omnipotent and omniscient. Like many of us, they don’t have a clue.”

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Axel Merk, president of Merk Investments and a Newsmax Finance Insider, says the decline in U.S. equity markets, especially in the S&P 500 index, lacked panic.
axel merk, cnbc, stock market, investors
Monday, 24 August 2015 10:00 AM
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