WASHINGTON, May 24, 2012 – Wednesday’s market certainly conformed to our observation here that Wall Street trading action was starting to resemble the “wash, rinse, repeat” cycle plot of that classic Bill Murray film comedy “Groundhog Day.” Actually, intraday action for the past two days might more strongly resembles the low-tech up-and-down action of that onetime childhood favorite toy, the yo-yo.
In an era of video gaming, 3-D film and TV, IMAX movies, and 24/7 texting one wonders how yo-yo sales are going anymore. They actually used to advertise these things on TV. But we can’t recall seeing any yo-yo ads in recent memory. Maybe the late Billy Mays is pitching the virtues of these simple toys now somewhere in pitchman heaven. But we digress…
Futures are pointing up this morning, and fairly nicely. Since we tend toward the bullish here, as most investors do, this kind of pre-market action used to get us pretty excited. It doesn’t any more, as lately, pre-market trading, which generally used to predict how the market would go that day, is more often proving to be a head-fake. Up and down, up and down, just like our old yo-yo. Playing with these things used to be fun when we were kids. But when your portfolio starts behaving like a whirling ball on a string, you start to question your sanity. And your investment tactics.
Yesterday was something of a case in point. Futures pointed to a disastrous open, which we certainly got. And things only got worse as the Dow promptly plunged 190 points and stayed down for well over a hundred points for the bulk of the day. But then, near the close, a substantial wave of buying materialized and the market closed pretty much at the breakeven point. As a beleaguered housewife on a 1950s TV commercial used to say, “What’s a mother to do?”
Interestingly, tech didn’t do too badly yesterday, buoyed up by Apple which, given the time of day, has managed to storm back up to the 560 neighborhood in two days after its bottom around 525 on Monday—this after plunging from the lofty 650 neighborhood it had achieved right before the latest crash-a-thon had commenced. It’s amazing what a fat profit margin will do for you even in a bad market. Clearly, a lot of previous Apple sellers who’d dumped the stock for the cash to buy last week’s fad, aka Facebook, decided to head back for a certified winner after leaving nasty, bathroom stall-style messages on their Facebook walls.
That said, CNN reports this morning that CNNMoney’s Fear & Greed Index indicates that “investor sentiment has been at an ‘extreme fear’ level for the past two weeks.” We wonder why? Might it have anything to do with the current 7-10 per cent straight-down market correction that’s going on? So much for irrational exuberance.
Meanwhile, the Facebook soap opera continues to get worse. We’ve been promising a piece in our companion column and will probably post it later this morning. But every time we finish a draft, more news piles on, making the current piece obsolete. We’re just going to draw a timeline in the sand and post this morning after adding the latest stuff, but let’s put it this way: a lot of overpaid lawyers are going to make a lot of money on this one. If you bought and/or sold Facebook shares during the debacle, look for a class-action lawsuit flyer soon in a mailbox near you.
But Facebook is already fading as a major headline issue. More worrying is the Greek thingie. This was and is the major piece of news that, in addition to Facebook’s disastrous post-IPO trading, has really haunted the market this week, big-time. When word came out that the Greeks were “considering” getting out of the Euro, sheer panic set in among traders.
Taken in context, the possibility of the Greeks leaving the Euro may not be cataclysmic. But it could be an intense disaster dogging the market for at least a few months if it happens. It occurred to this writer just the other day that the best analogy for this might be what happened here when the Feds allowed Lehman Brothers to fail. Bear Stearns, the next weakest domino, quickly dropped next.
Sensing the chain of events that would logically unfold next, the Feds and Congress quit squabbling long enough to create TARP while flooding the markets with dollars. Markets continued in their erratic crash mode until bottoming in March 2009, and Ben Bernanke’s free money has kept the averages in a more-or-less uptrend ever since.
We suspect that a Greek exit from the Euro might have an effect similar to that of Lehman’s demise. It could possibly topple another domino—Italy? But more likely, the rest of the PIIGS would, like Wall Street’s large banking institutions, would be deemed “too big to fail” and would get something like TARP to bail them out. For now.
The bigger question here is the future of the Euro. Everyone thought it was a great idea when it was invented, but riddle me this, Batman: How can you have a unified currency when you have X number of sovereign states that don’t actually support the loss of their monetary sovereignty?
The answer is, you can’t. And this, perhaps more than anything else—including obvious cowardice—is why Europe’s politicians dither endlessly. They don’t want to turn back from the Euro at this point. But it can’t possibly continue as a viable currency if each country insists on playing by its own, nationalistic currency rules.
We have a little flavor of that now, right here in the U.S. California has been behaving a lot like Greece, awarding rich, fat salaries, bonuses, health insurance, and retirement packages to public employee unions with absolutely no way of paying for them, except to raise already astronomical taxes on “the wealthy” and businesses, both of whom are leaving the state in droves. California, apparently, thinks it is running its own monetary system and is confident that U.S. taxpayers will be happy to bail them out when this asininity fails, as it must.
Watching Europeans deal with the irresponsible Greeks might in turn give us a clue as to what we’ll have to do when it’s time to slap a bankrupt California back into reality. It’s going to happen. You heard it here first.
Anyhow, we have today’s market to deal with right now. Futures have backed off a bit as we write, but the open should still be positive, at least briefly.
But beware. Wall Street is open today and tomorrow. But, lest we forget, the long Memorial Day Weekend looms ahead. And on Monday, Memorial Day, our markets are closed. With an alleged decision on Greece pending in the European Union this weekend, how many investors will actually be buying today and tomorrow, given that their positions could potentially be destroyed over the long weekend when they have no way of getting out?
Good question. Our guess is that we close this week firmly in the red.
Aside from this column, we think we’ll start our weekend early, as no good is likely to come from buying anything today or tomorrow.
If you have a few extra bucks left, that mattress still looks like an awfully good place to park them.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
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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.
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