WASHINGTON, May 17, 2012 – It sure is beginning to look like the end of something on Wall Street. Maybe the end of the old. A strange confluence of events has combined in recent days and weeks to get the early 2012 bull market well off its vigorous course. In recent days, we’ve flirted with a complete breakdown in the average. This is due at least in part to the following:
- The growing conviction that Greece will need to leave the Euro as that nation possesses neither the will nor the ability to comply with the European monetary union.
- The equal conviction that the fall of Greece will cause the European dominoes to start falling in Italy, Spain, and Portugal.
- Stateside, the pathological misunderstanding by the White House of how to nurture a capitalist system back to health, with resulting full employment.
- The continuation, for the third year running, of Harry Reid’s refusal to pass any budget whatsoever.
- The asinine déjà vu all over again antics of J.P. Morgan’s London trading desks, which once again are sucking confidence out of the banking, sector right when it seemed about to recover.
As of this morning, a major Spanish financial institution, Bankia—already nationalized by that government—is being nearly obliterated on international markets, due to the rumor of a run on that bank. J.P. Morgan apparently continues to experience massive trading losses due to the size of the bad hedge positions they’re being forced to unwind. Retailer J.C. Penney, is reeling after a sizeable loss and a complete dividend cut—all due, apparently, to the failed “everyday low price” policy instituted by its new CEO, Ron Johnson, a former Apple wunderkind. As they used to say on Top 40 radio, “The hits just keep on comin’.”
Thinking through how all this chaos will resolve is enough to bring about brain-freeze even in the most astute professional investors. So the answer for many is simply to bail on the market and let the dominoes fall. Or, for bolder buccaneers, short the heck out of everything. “Sell in May and go away” seems like a better and better investing strategy as each disastrous day jam-piles on its predecessors.
But making matters worse as folks head for the exits, is, oddly, Thursday evening’s Facebook IPO.
Hyped to a fare-thee-well, this mass media event has caused a great deal of excitement in the investment community—a frenzy, actually. CNBC this morning is flogging Facebook nonstop, no doubt pandering to viewers and advertisers alike. This IPO is being hyped as something rivaling, if not surpassing, the promise of the Second Coming of Christ. Seriously. But there’s no real reason for it, at least among retail investors.
Statistically, small investors will be able to get precisely zero shares of this IPO. In such “hot” Wall Street deals, nearly all the shares are strictly reserved well in advance for the well-heeled 1%. They’ll get even richer when the shares pop hugely at the Friday opening as all the retail suckers who couldn’t get in on the offering pile on to what shares they can grab in the open market.
But what does the Facebook IPO have to do with any of the existential threats we’ve been discussing? Simple. This offering is going to suck up a lot of fat cat money. And where will the fat cat money come from? All the stocks they’ve been massively dumping over the last few weeks, that’s where.
Ironically, it wouldn’t be surprising if a lot of this money was being raised at the expense of Apple’s stock, as yesterday’s darling seems, well, so yesterday. With the market massively down in recent sessions, the big boys probably figured over a month ago that they’d book their mind-boggling profits on Apple and other 2012 tech winners and hitch a ride with the latest and greatest hot bet in “social media,” Facebook.
Bottom line: With the market already eroding rapidly due to a variety of genuinely existential threats, the Facebook IPO is sucking the air—and the available dollars—out of the market. The whole panorama is something like a slow motion perfect storm.
Ultimately, whether running in foreground or background, the primary underlying fear is that Europe, due to our aforementioned reasons, is about to experience its own flavor of 2008 at long last. At least that’s what metals and commodities prices have been telling us.
Prices for most commodities, with the notable inclusion of once high-flying gold and silver, have been dropping like a rock, indicating that, as in 2008, the real, fearsome consequence of a Euro collapse will be a huge bout of DEflation, not the inflation that everyone’s looking for but can never find.
Currency collapse, massive bailouts, commodity deflation, and money exiting many stocks simply to chase an IPO whose value may be inflated far beyond any justification—all these are combining to give this market an almost frighteningly negative tone. And yesterday’s ambiguous comments from the Federal Reserve’s Open Market Committee did little to assuage the gathering fear.
That said, the market gets more oversold every day. It attempted to bounce yesterday. And there is occasional good news, like Wal-Mart’s fine numbers this morning. And the continuing drop in gasoline prices as, at least for now, the Iran-fear premium is rapidly coming out of overly inflated oil prices.
But lately, optimists have habitually wasted their buying power in the morning when they see the market going up; only to watch the market tank again as the big boys sell into the buyers and overwhelm the direction of the tape.
It’s beginning to look like the only way to get the markets back to some semblance of normalcy is for Europe to wash its hands of Greece while we get past that ubiquitous Facebook IPO for heavens’ sake.
Current wise investment tactics remain the same. Hold a few safe utilities and REITs if you must. But as for the rest of your money, your mattress is beginning to look better and better every day.
Futures are, as of this writing, mildly down this morning. Keep your powder dry—a real buying opportunity will remain elusive as long as the variables we’ve listed above continue to remain perniciously in play.
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.
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