WASHINGTON, August 1, 2014 − U.S. stocks and the bulls that love them both hit the wall − hard − on Thursday. In a sickening, waterfall decline, all averages fell an average of 1 percent, seemingly out of the blue.
But not really. The Russia-Ukraine situation continued to decline; Eurozone economies look to be facing deflation; Argentina’s money minister terminated discussions in New York Wednesday evening, not budging an inch from that country’s denial of reality re: that country’s now real bond default; and various numbers coming out of the government were interpreted badly.
“The good news is getting lost in the shuffle, and for the time will take a back seat to weakness in European markets on deflationary fears,” stated Art Hogan, chief market strategist at Wunderlich Securities during a CNBC TV interview yesterday.
The Argentine situation may have been the worst overhang on the market, given that Axel Kicillof, the country’s economy minister parrotted his boss, President Cristine Kirchner, as he stalked out of yesterday’s last-minute negotiations calling holdout bondholders “vultures.”
In some respects, that’s a true statement. The hedgies who won a U.S. court order in their favor are generally regarded even by your ever-fair Market Maven as “vulture capitalists.”
That said, capitalism is a contact sport. The firms holding the Argentine bonds bought them at a deep discount, regarded them as legal obligations of Argentina (which they were and are), and expected to make a profit in the end. They assumed Argentina would find a way to honor their obligations, as their last default, some 13 years ago, has kept them out of international credit markets ever since and they’ve been looking to get back into the club.
But socialism dies hard in Latin America, even affecting our current U.S. President with like thinking. So once again, the Argentine financial dance of death continues. It’s ironic, too, considering that government is actually solvent now, though it’s working hard to reduce that trend as government giveaway programs are causing rampant inflation.
At any rate, the Argentine mess and all of the above was made even worse by fears that Eurozone economies are so torpid that the dreaded spectre of deflation looms. So much for Mario Draghi’s latest hollow promises, as European politicians practice their favorite pastime – inactivity. And so it was Katy Bar the Door on Wall Street.
This morning would have been the time to get a nice reaction-bounce. But so far, it ain’t happening. At 10:30 a.m. EDT (we’ve been in Mountain Time in New Mexico all week), the Dow is down over 22 points, although the S&P and the NASDAQ are both up slightly. Traders no doubt fear the weekend which could bring more Russia-Ukraine trouble, witness the re-eruption of action in the Gaza strip, or who knows what else.
Again, no trading tips today. Gold is catching a reaction bid, but our forays into the yellow stuff have been inconclusive lately. We have written covered calls against some of our larger holdings so we don’t have to sell them. But aside from that, go enjoy your weekend, and maybe even get a head start on it. This week’s messy numbers, including tepid employment news, need some time to sink in.