WASHINGTON, July 23, 2012 – After a relatively placid and lightly traded few days last week, Wall Street seems set to get back to its losing ways this morning, courtesy of Spain’s latest credit, monetary, and banking troubles. As of 7:52 this a.m., Dow futures were down a whopping 137 points. S&P 500 futures are down an appalling 13.70 and tech-heavy NASDAQ futures are off a humongous 30.25 points. Looks likely that the NAZZ is prepared to erase much of last week’s gain, so here’s hoping your stops were set early and often last Friday.
According to CNBC this morning, “Spanish stocks fell sharply on Monday amid fears that a number of regional governments will ask Madrid for financial support. The falls come after Spain’s IBEX index fell by nearly 6 percent on Friday when Valencia, a region on Spain’s southern coast, said it would seek financial support from the central government.”
Growth has been contracting in Spain and unemployment is reported to have reached 25% in at least some areas. Rioting has occurred in the Spanish streets, most recently in Barcelona, understandably led by young people who, at this point, have zero chance of employment in the foreseeable future. (Don’t imagine it can’t happen here.)
All this is occurring not long after the new Spanish government’s recent assumption of power. (Nasty things are brewing for Italy’s new government as well, according to Zero Hedge.) It’s sad, but governments tend to change after things have become almost impossibly bad. If the Spanish populace chooses to turn on the new guys, they could create a Greek-style situation in a country that’s vastly larger and more economically powerful, arguably initiating a giant sucking sound throughout the Eurozone to which we on this side of the pond might not be immune.
And that’s probably what the futures are telling us this morning. U.S. bank stocks, a few of which had recently attempted to generate some green ink for investors, look likely to suffer damage this morning. Oil may take a hit, Syria and Iranian slaughter notwithstanding.
And if that’s not bad enough, the market may absorb some of the psychological negativity that’s been percolating through the media and entertainment industries, courtesy of an apparent Batman-wannabe in Colorado who thought it might be a swell idea to slaughter families in an Aurora movie theater. It’s been that kind of weekend, and Wall Street, for its own reasons, doesn’t appreciate confluences of negative events like we’re currently experiencing.
As we’ve been saying all through this “Groundhog Day” summer, you might be wise to keep as much of your powder dry as you can, burying spare Benjamins in that overworked stuffed mattress of yours.
But, short term, it could be time to game this mess with a couple of trading moves today. We’re getting rid of a couple of regional banks we still have profits in, BB&T (BBT) and the most confusingly named bank in America, Fifth Third (FITB). They’re both doing well, actually, but today is probably not the day to be in them.
In addition, if we can get a good price just after the opening debacle at 9:30 a.m. EDT, we’ll probably add a sampling of two currency ETFs, UUP (the U.S. dollar) and one of our longtime swing-trade faves, EUO (the double-short Euro). The latter is one of those dreaded leveraged ETFs that should be outlawed, but since it’s there, we’ll play it as it could give us a nice short term profit as the Euro looks to continue its inexorable slump toward parity with the U.S. dollar—something few foresaw as a possibility even late last year.
Long term, who knows? One of the weird but understandable things about this market is that it loves a weak dollar, which makes the goods and services of U.S.-based mega-companies much cheaper elsewhere in the world, leading to higher profits. But, when the dollar strengthens, our goods get more expensive abroad. And in a world where consumers are running out of jobs—and therefore spendable income—that doesn’t augur well for forward profitability. Hence, the Dow-sized stocks tend to take it in the ear.
This has been the pattern now roughly since 2008: when the dollar rises, stocks tank. It seems perverse, since everybody allegedly wants a higher dollar. But really, here in the U.S. at least, they don’t, and now there’s going to be trouble.
All this, in turn, is almost certainly why the Bernank refused to promise more stimulus last week, which didn’t help bullish spirits either. Fact is, Uncle Ben has been keeping whatever powder the Fed has left in reserve against just the type of Syria-Iran-Spain-Italy-Greece-Batman scenario we’re now witnessing.
Add all this together and measure its collective influence on the outcome of Election 2012 and you get a scary, confusing, violent movie that will be safer to watch from the sidelines rather than participating in it as a hapless extra. Long dollar, short Euro, and the rest in the mattress and maybe select utilities and REITs. That’s about it for today.
And keep your fallout shelter stocked. Geez. Where’s optimism when you need it?
UPDATE: At 8:18 a.m. EDT, Mickey D’s reported mildly disappointing earnings. Futures are reacting negatively and are now sinking even lower than we just reported above.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
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