WASHINGTON, June 25, 2012 – Futures point toward a nasty Wall Street open this morning. As of this writing (7:24 a.m. EDT), Dow futures stand at a negative 83. S&P is off by 10, while the tech-heavy NASDAQ is off a whopping 16.75.
This might just be the week for survivalists to test out their bunkers and rehabbed fallout shelters. Completely unpredictable forces will buffet the market in both directions, and things are likely to be more than usually violent.
For those attuned to world monetary policy shenanigans, Spain’s mess looms ever larger on the fiscal horizon. Zero Hedge offers a fairly succinct and nastily unsparing look at the latest rain in Spain:
“While the world has known for over two weeks that the Spanish banking system is insolvent and locked out of global liquidity, the country was reticent about formally bowing down to Germany and announcing in proper protocol that it was broke. Until a few hours ago, when Spain’s Economy Minister Luis de Guindos Monday sent a letter to Eurogroup President Jean-Claude Juncker, as expected, formally requesting aid to assist with the recapitalization of Spanish banks that need it, the ministry said in a statement. Sadly, at this point we can all just sit back and await for the next Spanish bailout letter demanding more cash, because, as we have explained on several occasions, the ultimate funding need of Spanish banks will be well over €100 billion, as further confirmed overnight by another analysis from Open Europe, which notes the paten[t]ly obvious: ‘Up to mid-2015 Spain faces funding needs of €547.5bn, over half its GDP and a large majority of its debt.’”
(Bolding is Zero Hedge’s.)
For U.S. dollar-oriented readers, our swag* at the €547.5B euro number in dollars at the current exchange rate would be close to $700B. That’s nearly as large as the entire U.S. tarp program. But the scary part is that this is Spain’s GDP we’re talking about, not the significantly larger U.S. GDP. The magnitude is mind boggling, and it’s definitely an eye-opener, making Greece look like a mere appetizer for the larger feast.
While Spain has definitely caught traders’ attention this morning, on this side of the pond, both newshounds and investors alike are on tenterhooks, awaiting the U.S. Supreme Court’s momentous decision on the Obamacare legislation. Consensus is building that the Supremes will at least strike down the provision that makes the purchase of health insurance mandatory for everyone, the so-called individual mandate. Eliminating this provision may or may not invalidate the rest of the legislation, but then again, the court could let other parts of the law stand or dump the entire mess en masse.
Consensus opinion these days, however, is an iffy thing. So, in the immortal words of America’s greatest living philosopher, Yogi Berra, “it ain’t over ‘til it’s over.”
Pundits were calling for this Supreme Court ruling to be published last week, but it never was. This week, though, is the court’s last week in the current term, so the Obamacare ruling will have to come out before COB Friday. Frothing at the mouth, MSM reporters are frantically opining that the ruling could come “as early as today.” The court tends to like to release stuff on Tuesdays, however, or Thursdays even. So in the end, who really knows?
Bottom line is this: whatever the ruling, it will throw markets into a tizzy. Stocks that will be heavily influenced by either the presence or the absence of Obamacare—pharmaceuticals, drug store chains, biotech, hospitals, managed care companies, homes for the elderly, and so forth—will be subject to wild swings as the winners and losers are sorted out. Pharmas are particularly on the hot seat as this legislation was essentially a conspiracy between these giant firms and the redistributionists currently running the country.
Wild trading will be aided, abetted, and exacerbated by the hideous high-frequency trading (HTF) dominance of the markets. HFT Alert observes that nearly “70% of daily volume [now] comes from HFT trading. Short bursts of activity create elevated quote rates, sometimes in excess of 20,000 a second in a single stock. This is what many HFT systems do to influence the price of a security or manipulate the latency in the tape. They expand volatility and run price quickly, sucking in traders attracted by a sudden move in price. The effect is designed to increase intraday volatility and use their speed advantage in trading.”
In other words, the HFTs and their algo buddies make tons of money. Our 401(k)s get killed. Expect a lot of this kind of action as the week’s events unfold.
Making things even more fun, the Obama Administration vs. Arizona flap will also be settled by the Supremes this week. While this will have little direct impact on the markets, it, along with the Obamacare ruling, will reset the tone and the topics under discussion for Election 2012, which will largely help determine whether the U.S. continues in its present form or decides to go the way of ancient Rome as it declined and fell to the barbarians.
The Financial Times of London opines that “…the healthcare ruling could have a substantial impact on the direction of a US election. To strike down the law would give Republicans a legal victory to tout as they persist in criticising the Obama administration’s over-reach’.
But it could also infuriate and energise the liberal Democratic base that has become increasingly disillusioned with Mr Obama during the past three and a half years, and which might not otherwise vote in large numbers again this year.”
FT tends to skew liberal on politics, so its latter hopeful observation is dubious, as Dems seem to be abandoning the sinking Carter Obama ship in ever increasing numbers. But who really knows these days?
So, surprise, we have another week where average investors, or at least the ones who are left, continue to watch in horror as the world’s idiot elite fritter away in slow motion the greatest economic system ever invented. Here’s an observation that appeared in David Malone’s “Author’s Note” to his recent book, Debt Generation, which we discovered over at the excellent Jesse’s Café Americain:
“The more I read, the stronger my conviction grew that the mainstream media’s reporting of the crisis was alarmingly wrong…
“We had been denied, I argued, a meaningful discussion of the nature of this crisis and the futility of what was being done in the name of fixing it. As the crisis unfolded, I became more and more convinced that what was being done in the name of helping us would instead, whether by design or stupidity, turn us and our children into the Debt Generation: the generation whose principle use and fate would be to pay off other people’s debts. It made me angry. Angry at those engineering it, angry at those who justified it, and angry at those who told me there was no alternative.”
Although Malone writes for the lefty (Manchester) Guardian, we can’t disagree with his spot-on observations here. This is the week that is and was. For the U.S., Spain, while important, is a mere sideshow. The Supreme Court ruling on Obamacare will more or less tell us what we want to know. If the legislation somehow is left to stand, the Debt Generation will be at hand.
No recommendations here until we see either the white or black smoke billowing forth from the chimneys of the Supreme Court.
UPDATE: Supremes rule in favor of part of Arizona immigration law that allows police to check immigration status of individuals they arrest. But they struck down three other provisions of the law. MSM types are lauding this as a great Administration victory, but it is hardly that, as the immigration paper check is okayed under appropriate circumstances in today’s ruling. This was actually the part of the law that the Administration was really trying to squash. However, the court’s ruling was also somewhat ambiguous here, indicating that either a revision of the law or further court tests may eventually be entertained.
More importantly for economic news, Drudge has reported and CNN has independently confirmed that the Supremes are going to make everyone sweat this week with regard to their final Obamacare ruling. Official word is that this ruling will be issued Thursday as perhaps the last ruling of this court’s session. Gotta give it to those Supremes. They sure have a sense of drama. That said, they may be spit shining their wording, too, as this decision is likely to be pulled apart like an artichoke one the written opinion comes out. If the ruling goes against Obamacare, the Dems will do everything in their power to thwart it after the initial reaction dies down a bit. On the other hand, the Supremes could surprise consensus and come up with a ruling that either favors the administration or proves so legally obtuse that the wrangle will continue into the indefinite future at the expense of the economy.
In other words, stay tuned.
* “swag.” Military-government slang for “stupid wild-ass guess.”
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