Add Wednesday afternoon’s Fed minutes release to China crash, Puerto Rico insolvency and Grexit farce, and we endure another day of chaos on Wall Street.
WASHINGTON, July 8, 2015 – U.S. stock markets were pounded down again after Wednesday’s 9:30 a.m. opening trade, plunging to over 200 Dow points in the red before that bellwether average began to steady somewhere between -150 and -175 points as we write this at 11 a.m. EDT.
The usual suspects all showed up on the punditocracy’s radar, and why not? In addition to the Dow, the broader-based S&P 500 was off 16.6 points; the more tech-oriented S&P 100 was down a nasty 39.23; and the NASDAQ was off a whopping 43.77, taking away even the usual hiding places in tech.
Elsewhere, oil price gyrations continued, as a positive opening trade for West Texas Intermediate (WTI) moved from slightly positive back to somewhat negative at $51.47 bbl., off 86 cents. For some reason, the euro improved slightly against the U.S. dollar, trading now at $1.1057. Bond yields remain relatively flat, after weakening earlier this week due to a worldwide “flight to safety,” meaning buying U.S. debt.
First, the Chinese government decided that their flagging economy could get more of a boost by letting foreigners as well as their own proletariat in on Chinese stock market magic. This initially resulted in a huge, parabolic and ultimately unsustainable increase in Chinese stock averages. This massive bubble proved so extreme that the government then tried to ratchet it back a couple of weeks ago by raising margin rates and other parlor tricks. The result: they scared the bejeebers out of everybody, creating in short order an equally ridiculous tsunami of out-of-control selling.
Chinese shares were down big time again earlier today as investors ignored continuing steps by the government to stem the rising tide of red ink. The selling panic has gotten so bad that one report has nearly 50 percent of all listed Chinese companies suspending their shares from trading, even as the government temporarily banned new IPO offerings as another way of closing off trading excesses.
Some reports have Chinese averages down as much as 30 percent over just the last few days, a depression-style market crash. Hong Kong alone was down a nasty 5.8 percent earlier, while Shanghai was off 5.9 percent and the Shenzhen was down 2.6 percent. The ripple effect also spread to Japanese markets which were off about 3.1 percent.
After years of crap, false dawns and unpleasant surprises, are Europe’s leaders finally ready to show Alexis Tsipras the door? Yesterday, eurozone officials gave Greece until Friday morning to come up with viable reform proposals, while the ECB provides enough liquidity to keep Greek banks afloat. All 28 members of the EU will then meet on Sunday to decide whether to accept the deal. Economists are now speculating what currency Athens would turn to if a Grexit becomes a reality: return to the drachma, develop a parallel currency, a euro-pegged currency, or keep the euro only as a monetary agreement (like Andorra and Vatican City).
Moving with the sun from Beijing to Europe, we find ourselves back in the middle of the ongoing Grexit farce. A Reuters poll of economists now shows fully 55 percent of them guessing that Greece, in some way, shape or form, will be departing the eurozone soon. Fully 60 percent of them are said to believe that Greece will default on that final, crucial debt payment they owe on July 20 to the European Central Bank (ECB).
Meanwhile, Greek’s Communist Premier Alexis Tsipras says his government’s latest (likely not much-changed) proposal aims for a “socially just” and economically acceptable agreement. The words “socially just,” of course, are a tip-off here, indicating the Tsipras is a fully qualified Social Justice Warrior (SJW).
From the sound of it, he still fully expects that all those incredibly wealthy, carefree European taxpayers will continue to support Greece’s bloated, overpaid and underworked government bureaucrats, their fat benefits packages, early retirements and outlandish pensions. Which, of course, is what “social justice” is really about: redistribution.
Unless Tsipras backs off this nonsense—highly unlikely—Europe, and particularly Germany, may start moving swiftly toward a formal Grexit after a high-level meeting of European leaders takes place on Sunday to consider the Greek “offer,” which as yet no one appears to have really seen. What was it Margaret Thatcher said about running out of other people’s money?
Lest we forget, Puerto Rico and its even bigger debt mess are also perched rather menacingly on the horizon, with no obvious way out save for Congress passing legislation according the U.S. Commonwealth the same ability to file for Chapter 9 bankruptcy that all U.S. states and municipalities already possess.
In a hilarious bit of classic leftist bias in reporting, the daily market rundown at Seeking Alpha entirely forgets who’s running Congress these days: “…presidential hopeful Hillary Clinton has joined calls for changes in U.S. bankruptcy laws that would allow debt restructuring for the commonwealth, pairing with Senator Bernie Sanders and former Governor Martin O’Malley.”
Seriously? Neither Hillary nor O’Malley currently holds any kind of office, and the socialist senator from the People’s Republic of Vermont is out on the hustings looking for presidential primary votes.
We see this kind of partisan nonsense all all the time, clear evidence the media cognoscenti still prefer to interview and give credit to their old Democratic pals despite the obvious fact that they were decisively dethroned by the voters from congressional leadership first in 2010, then in 2012 and even more so in 2014.
Note to Seeking Alpha: It’s the Republicans that have been working on and are prepared to move the Chapter 9 legislation. The Democrats will only show up to prevent the legislation from passing, unless they can give away more taxpayer money to their closest friends and supporters, whether that has anything to do with Puerto Rico or not.
Back on Wall Street again, guess what? It’s earnings season again, kicked off slightly early as usual by Alcoa (AA), which will report its Q2 earnings numbers after Wednesday’s close. Expect those numbers not to look so hot, although Alcoa will cook them rather bizarrely as usual. Aluminum and other commodities are ice-cold right now, and likely to remain so until someone else moves into the White House.
Finally, and lest we forget, the Federal Reserve will report out its June minutes at 2 p.m. EDT Wednesday. As always, you can bet your bottom dollar that all the insiders who’ve illegally paid for an early look have already read the report and will probably begin to tip their trading hands at 1:30-1:45 p.m. EDT. That will be our first tell as to whether the current minutes—written, remember, before Tsipras ordered last Sunday’s pop referendum in Greece—will give us a clue as to when or if the Fed intends to raise interest rates any time soon.
The IMF has pointedly asked the Fed to hold off at this juncture, given the current world situation. But those June minutes—unless they’ve come in for some kind of qualification or revision—are not likely to reflect this general change in IMF and world sentiment.
Even a hint that the Fed is still ready to raise rates in the third quarter will likely cause a tsunami of selling that rivals what’s currently going on in China.
So stay tuned. We’ll offer a short update after we take a look at the Fed minutes, sometime after 2 p.m., when the Maven and all the rest of us disconnected plebes get to read them.Click here for reuse options!
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