WASHINGTON, July 7, 2015 – We’re facing a real harmonic convergence of bad stuff on Wall Street this morning, as traders and institutions continue to bail out of or short stocks against a rising tide of bad and/or uncertain news. Let us count the ways. Or better yet, let’s take a quick look at the villains in this fast-curdling mess.
As the Maven always expected them to do, the Greek Communist government has delivered its promised proposals Tuesday to the Eurozone. According to Reuters, these much-ballyhooed new proposals “differ only slightly” from the belligerent non-starters the Greeks delivered previously.
CNBC reports via its highly useful and continuously updated blog that “Alexander Stubb, Finnish Minister for Finance, says the Eurogroup is not willing to ease Greece’s debt burden. Says the door for negotiations remains open but adds that the door is very conditional. He adds that bridge financing for Greece is not being looked at.” In other words, things are just the same as they were before the Greek referendum and before Greece’s former finance minister and euro-baiter-in-chief Varouflakis was sent packing by his own government.
We’ve said it before and we’ll say it again: Communists never negotiate. They stall, grandstand and stonewall. It’s who they are. It’s what they do. The markets don’t like it. The ECB is maintaining liquidity for Greek banks but is raising the collateral the banks need for the continuing loans. The Grexit still looms.
Oil ticked up slightly before this morning’s opening trade, but now it looks like oil futures are picking up from where they left off yesterday. As of approximately 10:30 EDT Tuesday, West Texas Intermediate (WTI) was sitting at $51.05 bbl., off $1.48 from yesterday’s closing 7+ percent decline and adding another 2.82 percent to that decline this morning. This waterfall decline is being aided and abetted by…
Likely due in major part to the Greek bailout farce, the euro, which had been holding for a week or three at the 1.12-1.14 dollar handle, started declining late last week. Tuesday morning, it’s already off another 1.1 percent, sitting at a little more than $1.09.
Read also: Greece votes no grexit plan z to follow?
The moves of currency pairs in 2015—particularly the dollar-euro trade—have been truly startling. A daily move of even a quarter of a penny is considered large. We are now getting moves of a cent or more in one day.
The euro continues to weaken in part due to the beginning earlier this year of its own belated QE money-printing program. But the currency’s wobbling has increased due to the absolutely unknown outcome of the current problems in Greece. The partial upshot of this ongoing uncertainty is the strengthening of the dollar and the U.S. bond market as money’s hiding place of last resort.
As money heads for the comparative safety of the U.S. bond prices and the value of the dollar strengthens anew… helping hammer down the price of crude oil, which is still usually denominated in dollars. Hence, any downward motion in the price of oil is further exacerbated by dollar strength. See how this is all interconnected.
How could we have forgotten the Chi-coms in our earlier posts? Allegedly the master manipulators of a brand new kind of state-run capitalism, China’s current “back to the future” dictatorship is getting ham-fisted with its economy and its stock markets.
Not too long ago, China not only opened up more of its stock market to foreign traders, the better to attract fresh capital. It also opened the floodgates for the average Chinese citizen to trade freely on these same markets. The result was an almost instantaneous bubble in Chinese stocks as eager newbie Chinese investors hocked the shirts off their backs to become investment tycoons.
Horrified at the ever-inflating price bubble that inevitably occurred in rather short order, the Chinese government put the brakes on all this hot trading roughly a month ago. Almost instantaneously, the blazing-hot Chinese exchanges deflated, not with a slow leak but with a gigantic explosion. The universe of Chinese stocks tanked so rapidly that the Chinese have halted the issuance of new IPOs and have “encouraged” financial institutions to buy stocks. Lots of them.
Problem is, it hasn’t helped. Chinese stocks continue to tank.
Which adds another falling domino to the currency problem, the oil problem and, for that matter, to the sinking-price-of-commodities problem. If the gigantic Chinese markets and economy can’t gain positive traction, it’s big recession time in the People’s Paradise. Recession means that consumers and industries in the world’s biggest market won’t be buying stuff. From anybody. Oh-oh. More pressure on oil, more pressure on stocks, and no investor happiness at all.
Post-script, but don’t forget these guys who are actually part of the U.S. lest we forget. Like Greece, they’ll never be able to square their debts either. But while Greece remains a problem for the Eurozone, Puerto Rico is on us. Word is trickling down that Congress may pass some legislation that allows the Commonwealth of Puerto Rico and its associated government entities to file for Chapter 9 bankruptcy as any regular U.S. State or municipality is entitled to do, and as Detroit recently did. Nothing to see here as of yet. But this is another ticking time bomb.
Take all these together, plus fears that a lousy Iranian deal will pour even more crude oil into the world’s current oversupply, plus ISIS, plus the continuing nationalist ambitions of Russia’s Premier, Vlad “The Impaler” Putin, and investors are seriously wondering if they should just dump everything, put it into mattress cash or gold or both and head for the beach.
Who can blame them?