WASHINGTON, May 14, 2012 — After wobbling a bit in the positive zone last night, Dow futures are plunging a whopping 98 points as of 9:15 this morning, just 15 minutes before the opening bell. The stated cause (yawn) is Greece, again. Our friends on the Aegean seem entirely unable to form a government, which likely means the Greeks will have to go back to the polls and try again sometime in early to mid-June.
This, of course, leaves the EU—and the Euro—in limbo. And the markets, like nature itself, abhor a vacuum. Hence, fear, doubt, and plummeting futures.
It’s almost like a broken record, a metaphor that hopefully suffices for the older generation anyway. Stuck in a vinyl groove, the needle moves back and forth in a narrow range, annoying the listener with musical fragments that are repeated again and again and again until someone can intervene, lift the needle and make it stop. Problem is, no one in Europe seems to know how to lift that needle, and so that annoying half-bar of music keeps going and going like the Energizer bunny. And it’s making everybody crazy.
As we’ve said before in this space, though, this is giving markets the perfect environment in which to sink. Institutional sellers, short sellers, and insider sellers have been hard at it for at least a month now, so we may rationally expect some kind of replay of last week’s market action, which is sort of “wash, rinse, repeat.”
Typically in recent days, the market has opened down, proceeded to waterfall further, then recover in sometimes-dramatic fashion before selling off hard late in the session and systematically removing all cause for potential joy among the bulls. That’s because the big boys are staying away until later in the day when the bulls come in to “bargain hunt,” bidding the numbers higher. When they’ve gone high enough to make the bears happy, the bears start creeping in to sell or short into the exuberance and then really spring the trap right at the close which is why you get such a violent drop around 3:59 p.m., more or less.
We hate to sound like a broken record ourselves, but the same advice we’ve given lately pertains again today. Keep your powder dry, and hold onto only high dividend-paying stocks if you must. Everything else, particularly materials, happens to be highly vulnerable right now. If you own any of these names, you’re vulnerable, too, so slide out of those positions on the rare good day—or good hour as the case may be.
We strongly suspect the chaos will continue for quite some time. Greece, frankly, seems to be Hellenic bent on getting back to the drachma. And we think that slowly, inevitably, the Euro begins its descent back to earth, a good thing in general, but a bad thing for American exports, such as they are.
Ultimately, we continue to remain mired in what is developing to be a generational financial mess. The faux-socialist governments of the world, including the current U.S. Administration—have gummed up the capitalist works with a bizarrely elitist flavor of crony capitalism disguised as social benevolence. In the process, monetary systems, and, most importantly, public trust, have been virtually destroyed. Everything we’re watching now is a slow, killing endgame, stalled seemingly forever by endless timeouts like the now likely-to-be-restaged Greek elections.
Without decisiveness, we’ll continue to muddle along—to the eventual bottom. It’s a heck of a way to end a once-wonderful ride to prosperity.
Stay tuned. Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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