Markets prepare for the wrath of Zeus
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WASHINGTON, June 15, 2012 – We’ve tried every metaphor in the book to describe this frustrating market: the movie “Groundhog Day”; Beckett’s absurdist (or not) drama Waiting for Godot; shampoo instructions, as in “wash, rinse, repeat”; and heaven knows what else. But the result is the same same old, same old.
As the Eurozone fiddles and burns, most investors and traders on this side of the pond remain out of the market, transforming Wall Street into a paradise for the virtual video gamers who run the high-frequency trading (HFT) programs. These have been largely the culprits behind the averages’ wild gyrations, making mincemeat out of all attempts at rational investment, whether technical, fundamental, or both.
Yesterday, the market was prepared to tank and indeed began to do so as we predicted. But then a rumor somehow got floated that the world’s central bankers were prepared to massively intervene if the Greek election thing on Sunday started getting markets out of control—as if they aren’t already. In any event, this caused a massive rally up to Dow +200 or so before things calmed back down. But the market still closed substantially up.
The rumor was debunked after the market close. But this morning, it’s been revived again, perhaps aided by the Fed’s weird actions yesterday whereas it bought as many bonds on the open market as it was selling. Stealth QE, anyone? Who knows?
In any event, Dow futures were up sharply this morning…until the New York Fed came out with news at 8:30 a.m. that manufacturing growth has slowed—massively—in June, with the Empire State Manufacturing Index plunging from 17.09 in May to an astonishing 2.29 today. That’s nearly a negative number, folks, the sort of thing that’s been a hallmark of this non-recovery, led by a president who thinks that increasing the number of taxpayer subsidized public employee union workers is how you grow an economy. Hope and change, at your service.
The nice thing about being a closet Marxist-Leninist—which this president is—is that, unlike conservatives and realists and even old-style liberals, you get to declare the truth rather than discover it bit by bit after conducting difficult and painstaking research. If bankrupting America’s remaining taxpayers in order to grow government employment will somehow defy the laws of economics and bring us to full employment and growth at the same time, well, that’s what it will do. Because The Party says so.
Unfortunately, we’ve seen where this bizarre mindset is taking us, and this weekend’s fun in Greece is, as we’ve said many times here, the canary in the coalmine. Greek voters can perhaps be forgiven for voting like irrational idiots. After all, they’ve been battered again and again by politicians selling empty promises and outright lies. The Greeks thought everything was just fine because their old-line politicians told them so. They never bothered to question the fact that they, and their country, were spending vastly larger sums of money than they were taking in. That’s because it was all borrowed to perpetrate the lie. And suddenly, the bill came due and they couldn’t pay. Sound familiar?
At this point, whether it’s the Greeks or us, it looks like only a lightning bolt from good old decisive Zeus will be able to sort things out. And we’re likely to get one of those bolts this weekend if the frustrated Greeks listen to the irrational siren song of the far-left Syriza agglomeration of assorted socialists who are at this point determined (publicly) to stay in the Euro while refusing to impose any fiscal discipline at all. Except maybe nationalization of industries. Which is what socialists worldwide love to do as it makes them popular without forcing them to solve a thing. (Ask Argentina.)
It’s a mess and, as longtime investors, we’re growing rather weary of it. We’ve hedged our remaining positions with selected shorts—which at this second don’t look like too happy an idea. But this market has gyrated irrationally all week, and, after all, it’s quadruple witching Friday at last, so who knows what happens this afternoon?
Since things are so idiotic right now, one’s only real hope of making money—aside from a quick trading scalp if you have the time for it and don’t have to focus on a real job—is to sit in high interest investments like utilities and selected REITs and maybe hedge them a bit with inverse (short) ETFs. No rational strategy is working here, so the best one can hope for in the near term is stasis, i.e., capital preservation.
The whole thing is frustrating when you keep reading about the big bonuses continuing in Wall Street and when you see the fat, happy, feckless lives led down here in DC by politicians of all stripes. This ain’t a democracy any more folks, at least in the sense of representative democracy. And it is likely to get much uglier before it gets better.
Meanwhile, let’s stay conservative and hedged and see what Zeus and the Greeks do this weekend.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
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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