Euro mess continues to haunt Wall Street

Spain downgrades, Cyprus gasps, high-frequency scalpers still rule the day.

WASHINGTON, June 26, 2012 – Futures point to a modestly positive open this morning. Perhaps we’ll catch a breather from the relentless high-frequency shorting and selling today as Wall Street catches its breath and absorbs yesterday’s news.

Whatever the case, those high-frequency trading computers and other assorted jumpy algorithms will remain at the ready, eager to relieve any remaining retail investors and mutual funds of their hard earned retirement dollars in a New York nanosecond. Like Hal 9000s on steroids, they really don’t care what happens to inferior carbon units desperate to salvage something out of their ever-dwindling portfolios.

Meanwhile, back at the monetary ranch…

Late to the party as usual, Moody’s downgraded Spanish banks big time. Meanwhile, back at the DC Corral, the Supremes issued a bizarre ruling on Arizona’s immigration statute, tossing most of it in the trash bin but allowing a key immigration paper check to stand. Sort of.

But, frankly, everyone is more or less marking time until the week begins to draw to a close. With the new Greek prime minister ailing and that country’s already ailing new financial minister actually resigning due to his health issues, “final” action on the Greek situation was punted until later in the week. That’s when Eurocrats meet once again for a “final” solution for Greece, Spain, and now perhaps Cyprus, which is getting killed by massive transactions involving, you guessed it, nearby Greece. We put the word “final” in scare quotes here because, given past behavior, we don’t believe for a minute that the Eurocrats will ever issue a “final” anything until the Euro gasps its “final” breath.

Cyprus map.

Et tu, Cyprus?

Moody’s Spanish downgrades at this point are just more piling on, and late to boot. In the first place, one wonders why anyone even bothers to pay attention to these ridiculously compromised ratings agencies anyway. These are the same corporate clowns who were busy rating junk real estate paper quintuple A until we were well into the Great Recession/Great Depression II. If they’d actually been doing their jobs, we might have avoided at least part of this fiscal disaster, but they had their clients to please and fees to book.

The ratings agencies’ running downgrades of sovereign and bank debt are following a similar pattern. Everybody’s known about this rolling disaster for years now, but the ratings agencies have only recently begun to catch up to reality. The function of a ratings agency is to get out in front and warn of impending positives or negatives with regard to specific debt instruments and institutions. Lately it seems, even Joe the Plumber could probably have figured most of this stuff out well before these useless relics could come to a conclusion. The ratings agencies may still command headlines, but they’ve become a laughingstock in terms of credibility.

That said, one amusing irony in the Moody’s downgrades was the revelation that the overall health of Spanish megabank Santander, even though downgraded, was now one ratings notch higher than the sovereign debt of Spain itself, which tells you something about how some of these countries are run. (Banking nerds who crave detail will enjoy perusing Moody’s Spanish banking spreadsheet, available here in Excel format.)

Regarding the Euro-mess as a whole, some financial pundits are actually predicting the end of the Euro as early as this weekend, reasoning that the Germans—at the end of their rope regarding southern European countries demanding German money to maintain their profligate faux-socialist lifestyles—might just unilaterally return to the deutsche mark.

Their problem with the Euro hasn’t been made any easier by the election of a French socialist government whose first unbelievably stupid move was to push the French retirement age back to the ridiculous age of 60. That’s “progressive” all right. But we’ll wait and see. Europe’s capacity for dithering seems endless, and if there’s a way to postpone disaster again, they’ll find it.

On this side of the pond, after the Supremes announced their Arizona decision and a few others, they also announced that their Obamacare decision announcement would have to wait until Thursday. Public consensus is that the individual mandate and maybe some other stuff will go. But after that very strange Arizona decision, who knows?

Perhaps various Supremes cut some deals on assorted cases, allowing them to go one way on Arizona and another way on Obamacare. The Supreme Court, whatever its makeup, generally tries, when possible, to act collegially, so some horse trading may have occurred in the background on all this. It’s difficult to tell. Justice Kennedy seemed to be in one of his periodic liberal moods in the Arizona case and remains a cypher in the Obamacare matter, although his questioning of the government’s case a couple months back was notably sharp.

In any event, we get to find out what happens on Thursday, apparently, so it’s back to Waiting for Godot again.

The Obamacare decision, whatever it is, will have an impact—perhaps a dramatic one—on all manner of healthcare stocks. Zero Hedge has helpfully provided readers with extensive charts of up and down possibilities based on five possible Supreme Court ruling scenarios. Generated by Bank of America’s Merrill Lynch group, these chart-matrixes contain fascinating and detailed information that will be of great interest to investors who trade in the healthcare, pharmaceutical, and biotech areas. Double-clicking the charts will enlarge the tiny embedded charts so you can read them with ease. Remarkably interesting.

Aside from this stuff, it’s probably advisable to stay away from stocks until at least some of the smoke clears, either this Thursday or this weekend. We’d expect a quick spike up today, then more relentless selling until…whenever. The investment climate is simply not very good right now and it’s best to avoid becoming inadvertent cannon fodder for the HFTs this week.

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.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17

 


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  

 

 

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