Things you should know..
- Protests in HK force another day of closure at the airport
- Is China gearing up to Invade and Crush?
- Argentina becomes a crisis (again) – Cristina Fernandez de Kirschner rises (again)
- Treasuries and Gold become BEST performing Assets
A Black Swan theory (event) is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. (Wikipedia). Now yesterday that black swan was Argentina…..(you can almost hear Eva Peron – played by Madonna – singing…”Don’t Cry for Me Argentina….. https://www.youtube.com/watch?v=KD_1Z8iUDho ). But let’s move on and come back to this part of the story in a couple of paragraphs.
As the sun rose over the east coast yesterday – futures looked a bit lower – as investors had the opportunity to digest the action from last week – what to do? What about plunging interest rates? What about the looming recession that is sure to hit us hard as analysts/strategists debate not if but when…….. Central banks around the world followed our lead and cut rates while others have a rate cut on the agenda – all signaling concern over the health of the global economy…….causing investors around the world to re-price stocks……and so the angst of last week invaded the thought process yesterday morning, then toss in the unrest in Hong Kong – which is now spinning out of control – shutting down the airport disrupting travel across the continent and the world. Hong Kong’s CEO Carrie Lam seen on the verge of a nervous breakdown as the protests continue…… China is now left in an awkward position – How are they going to deal with it? The last thing they want is another Tiananmen Square and the very last thing they want is to appear as if they lost control of one of the satellites….Because you see – Hong Kong is China – (the Brits returned the territory to China at midnight on July 1, 1997) and so Xi Xi has to do something while not appearing to be “Russian like”. It is only a matter of time before Xi Xi and the PLA (People’s Liberation Army) INVADE AND CRUSH the protestors in Hong Kong (Russian like) – Chen Daoxiang – commander of the PLA had this to say:
“the violence is intolerable and the PLA will protect China’s sovereignty…… All consequences are at your own risk…” I can feel a new James Bond movie in the making……
So as the opening bell rang – Stocks plunged in what some thought would be a complete repeat of last Monday that saw the Dow lose nearly 1000 pts before finding buyers…..yesterday – the Dow lost 462 pts at its worst before ‘rallying’ to close down 389 pts or 1.5%. The S&P, Nasdaq, Transports and the Russell all fell in concert with the Dow Industrials…..ending the day down by 1.2%, 1.2%, 1.7% and 1.2% respectively.
Treasuries which surged last week continued to surge again yesterday as investors around the world ‘bought in’ – forcing yields across the curve to plummet……The 2 yr yielding 1.58%, the 10 yr yielding 1.64% and the 30 yr yielding 2.13% – and this will be welcomed news for revolving credit, auto loans, mortgages, home equity loans etc…. Gold spiked up and thru $1500/oz last week with no end in sight ending the week at $1517 – and then surged up and thru $1530/oz during the day yesterday before ending the day at $1520 – this morning we are seeing gold rocket higher – adding $26/oz to a new 2019 high of $1542.70…..as the nervousness surrounding the ongoing overnight chaos in Hong Kong, trade, rates, BREXIT, Italy and now another Argentinian debt crisis coupled with massive political uncertainty builds……
Oil continued to weaken last Monday trading as low as $50.52/barrel – well below the $90 price tag that our friends at GS put on it in the spring…..(remember when they called for $200/barrel?) as ‘the global recession’ talk caused traders to hit the sell button because demand was going to plummet (when the recession hit). By the end of the week – oil managed to claw its back to the trendline at $55.98/barrel….only to come under pressure again as talk of falling Chinese demand and global concerns rise So the next question is – At what price point will The Saudi’s and the Russian’s say ‘enough is enough’……and announce more production cuts as they scramble to take back control of the price of oil? Can the take back control? This morning oil is trading down 15 cts at $54.82 –
And if that wasn’t enough – the Black Swan! The Argentinians went to the polls to vote in the primary…..…and guess what? The result was NOT what the mkts, the current President – Mauricio Macri or any of the analysts had expected……in a ‘surprise’ result – the early indications show that former populist President Cristina (Fernandez) de Kirchner who is running as the Vice Presidential candidate alongside Alberto Fernandez (Presidential candidate) are set to take control….. as they swept up the vote….. Argentinians are disgusted with the current state of affairs in their country – soaring inflation (56%) , austerity measures, a deep,(deep, deep) recession and now another Argentinian Debt Crisis…….Insurance (Credit default swaps) are now predicting a 75% chance of default…….. Now while this was NOT the official vote – it was the primary – and it validates that the candidates have enough support to move onto the final vote in October and both sides do….BUT the extent to which the current President trailed the opposition candidates has set the tone and suggest that the formerly disgraced Cristina Fernandez – who is charged with multiple counts of corruption is well on her way back to power…..now I guess we just have to wonder if they win – will the newly elected President will somehow suffer a fatal plane crash soon after taking office leaving Cristina in line to return to complete power…..…….I mean you can’t make this stuff up! Who would ever believe you?
This morning we see global mkts all in the RED zone – it is a RISK OFF DAY …..Hong Kong has once again cancelled all flights for a second day as the protests and the protestors create more chaos……Carrie Lam pleading for the protestors to stop before sending the ‘territory’ into the ‘abyss’. The PBoC (People’s Bank of China) set the midpoint reference price for the Yuan at 7.0326 – still well above the psychologically important 7 Yuan/dollar. Darius Kowalczyk – Chief Economist at Credit Agricole had this to say on CNBC Street Signs (Asia) –
“The escalation of the methodology of protesters is inviting escalation of the response by the government, so clearly the risk of a stronger clampdown is on the rise and that has market implications,”
By the end of the day – Japan -1.1%, HK – 2.10%, China – 0.90% and ASX -0.33%.
This morning in Europe – mkt centers there are all lower as the video of HK protests are flashed around the world. In addition – the Italian’s are due to meet today to set a date for a ‘no – confidence’ vote for the current gov’t, and the unrest in Argentina continues, fears of a debt default are building and complete political unrest is sure to follow – although current President Macri is vowing to turn yesterday’s result on its head…. Now the German ZEW Index was horrible….falling to -44.1 (a 2011 LOW) and that is certainly NOT helping the tone – but either way – the negative tone is the negative tone….and there isn’t a lot that can change it today…..FTSE – 0.51%, DAC 40 – 0.56%, DAX – 0.94%, EUROSTOXX -0.64%, SPAIN -0.59% and ITALY – 0.66%.
US futures are all pointing lower (but not terrible) – that should be no surprise…..Dow futures are off 22 pts, S&P down by 5 pts, the Nasdaq lower by 15 pts and the Russell is off by 4 pts. Treasury yields continue to fall (as prices rise – it is an inverted relationship)…..you can credit HK, Trade and rising concerns about the health of the global economy. The 30 yr bond is now teasing to open BELOW 2.10% while the 2 yr / 10 yr spread is on the verge of inverting…..as the RISK OFF tone continues. As noted Gold is the ultimate beneficiary today rising 1.5% and it’s not even 7 am on the east coast.
The focus will remain on all of the noise as the mkt is being driven by overly cautious investors…..equities will need to reprice the new risk outlook…but remember – even with all this we are still only 4.5% off of the highs….Like I said yesterday….the S&P which broke intermediate support (again) needs to test it long term trendline support at 2790…..and while that feels ugly – last weeks damage needs to be repaired and the only way to do that is to test the technicals.
Bottom line, unless the headlines somehow turn positive regarding Hong Kong, Argentina, and global growth, then it will be very difficult for stocks to rally today.
Take good care.
Maple Bourbon Marinade –
This is a simple marinade and is wonderful when grilling a nice sirloin steak or bone in Rib-Eye.
For this you need: 1 cup of real Vermont maple syrup, ½ cup of Jack Daniels Bourbon, s&p and a shot of ground red pepper….
Mix well – and then use it to marinate your favorite cut of meat. (Overnight always works well) . You can use this marinade on steak, chicken or even pork – Not sure how it would be on fish – but if anyone wants to give it a try – send me your comments.