Grexit fears, anemic U.S. job numbers hit pre-holiday trade

Traders take early Independence Day holiday from anemic, fearful U.S. stock market. Meanwhile, poor job numbers, weirdness in Greece, stick save by Puerto Rico.

One puckish German entrepreneur has invented a new, bottled vodka drink to celebrate an anticipated "Grexit" from the euro. The Greek PM and Finance Minister are highlighted on the label, happily toasting oblivion. (Via Twitter)

WASHINGTON, July 2, 2015 – Part of the problem writing this column in 2015 is that we’ve been forced to repeat the same stories over and over. That’s because the entire Western world, including the U.S. and Latin America, seems to have hit an entropic state, rendering the governments of these countries utterly incapable of solving a single one of their most pressing social and economic problems.

This is largely because politicians of all stripes are eager to preserve their own positions and prerogatives as well as those of their universally wealthy patrons.

In the meantime, the taxpayers who generally foot the bill for this small army of wealthy deadbeats, continue to pay an ever heavier price in taxation and job loss without raising much of a ruckus at the ballot box. Until and unless this happens, nothing will change, including tepid employment numbers and pathetic economic “recoveries” that are basically not recoveries at all.

That’s what underpins 2015’s generally lousy market action. Thursday trading started out somewhat positive. But as of 2 p.m. EDT, all the averages have slipped thoroughly back into the red, once again putting the Dow back into the red for the year even as the S&P 500 and the NASDAQ wobble around as well. The remainder of the year is likely to continue with this pattern, since nothing substantial is likely to change. Too dangerous for TPTB (The Powers That Be).

But they continue holding onto their lucrative jobs. You and the Maven, on the other hand, would have been fired from the private sector years ago for this kind of protracted, wimpy and gutless behavior.

The one bit of at least temporary good news this morning finds that beleaguered Puerto Rico somehow managed to pay its obligations due yesterday, staving off the U.S. commonwealth’s own huge credit problems for, oh, at least a few more days.

Meanwhile, as one might expect, also hitting the market this morning is fresh, yet continuing uncertainty concerning Europe’s Greek Hamlet problem—to Grexit or not to Grexit—a situation complicated by U.S. payroll numbers that are rotten no matter how you spin them.

Nervous investors are likely lightening up on holdings today given the uncertainty of the Tsipras administration’s feckless, reckless, thoughtless and ill-conceived pop plebiscite on fiscal realism that’s set for Sunday. Whether staying in the Eurozone and/or the euro is supported or rejected by those Greek voters who even bother to go to the polls, the outcome will have a big influence on Monday’s trading situation.

The the real problem with this vote, other than the fact that it was called at all, is the absurdly complex and likely inaccurate wording of the current referendum, a twisty-turny chunk of misleading verbiage that only a veteran Washington bureaucrat could hope to decode.

The average torqued-off Greek voter probably won’t even know what he’s voting for, which is the way politicians actually like things as we learned here from the ex post facto Grubergate scandal. Tricking voters into favoring something they don’t really want is the way all socialist governments work.

We’ll try to report back here on the Greek vote some time this Sunday, assuming we get numbers we can trust from the polling and can make some sense out of them in time to guess Monday’s opening market action.

Meanwhile, that other complicating factor for today’s trading is the continuing paucity of U.S. jobs. We’re talking about those “unexpectedly” poor June job numbers reported a day early today due to the Friday federal holiday. This slow-boil topic may also influence Monday’s trading, but you have to follow the bouncing ball to see how this works.

According to CNBC,

June’s softish jobs report provides no new fuel for a rate hike and in fact may give the Fed pause if there’s no reversal this summer.

The 223,000 nonfarm payrolls added in June were slightly less than the 230,000 expected. But the unemployment rate fell to 5.3 percent from 5.5 percent because fewer people participated in the workforce or looked for jobs.

U-6 unemployment, June 2015.
Chart based on BLS stats shows another big labor issue: the “official” unemployment numbers vs. the more accurate ones expressed in the U-6 chart which includes those who’ve fallen off unemployment roles and those who are underemployed. (Chart created from BLS numbers by CNBC)

The report duly notes the potential problems raised for the Federal Reserve by this report.

2015’s ongoing, anemic job creation numbers, added to the Grexit issue, will likely continue to frustrate the Fed’s continuing attempts to raise interest rates—a problem that hit banking and financial stocks this morning, blunting and negating yesterday’s rally mode.

CNBC again:

“Liftoff is still possible (for September), but the risks of a delay are rising quite rapidly,” said Diane Swonk, chief economist at Mesirow Financial. “One month does not a trend make. We need a reversal now. We just hit another pot hole.

“Economists have mostly been forecasting the first rate hike for September, based on expectations the economy will continue to improve through the summer….”

“I think it doesn’t really change the current take on the Fed. It’s still a September or December liftoff hike,” said Ian Lyngen, senior Treasury strategist at CRT Capital. ‘I think it was a reasonable report. If you factor in prior revisions, on the margin, it was slightly softer than anticipated. But it was not a significant enough deviation from expectations to warrant a shift in forecast.

“But traders in futures markets Thursday cut back wagers on the first Fed rate increase for both September and December, and pushed bets out into 2016.”

All of this, in turn, is depressing for banks, which can’t really profit by making loans at current rates. Which keeps them sitting on billions of dollars. Which is why you still can’t get a loan. Which is why banks were looking forward to those rate increases, which may yet again be punted in September. It’s the dilemma that keeps on giving.

All of which means, forget about stocks until next week. Nothing to see around here today. But beware of Greeks bearing very bad gifts when U.S. markets re-open for trading Monday morning. It could be a whole new world out there.

Or not.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17