Monday, April 23, 2012

Storm of Events Leading Markets and Economies Down Financial Abyss

As far as headwinds were concerned, the Spring storm which raged across the Northeast was nothing compared to the global typhoon of financial and economic news on Monday.

On Sunday, the French people went to the polls and pulled more levers for Socialist candidate Francois Hollande than for current conservative president Nicolas Sarkozy in the first round of voting. Sarkozy and Hollande will compete for the presidency in the next round of voting, in two weeks time, but the results are being characterized as investor-unfriendly, not only because Hollande's stance will be less favorable toward the Euro than Sarkozy's, but also because far right candidate Marine Le Pen took third place with 17.9 percent of the vote, signaling that French anger over unemployment and austerity are reaching fever pitch.

Overnight, China's "flash" PMI showed a sixth straight month of contraction at 49.1. Even though the reading was better than expected, the news fueled continued fears of a hard landing for China's economy.

As the week began in Europe, two events sent European stocks into a tailspin. The Central Bank of Spain reported that it was officially in recession, as its GDP shrank for the second straight quarter, down 0.4% for the first quarter of 2012, while in the Netherlands, the government collapsed - Prime Minister Mark Rutte and all cabinet members resigning - after failing to reach agreement on an austerity plan within EU strictures.

As if that wasn't enough for the opening of markets in the US, the scandal that Wal-Mart executives bribed Mexican officials for favorable results on building permits was exploding late Sunday into Monday after the New York Times broke the story on Sunday.

While the fact that a large American corporation would bribe officials in a foreign country to receive favorable treatment - the same is done legally in the US, though here it is called "lobbying" - is nothing new, the idea that Wal-Mart executives chose to cover up the scandalous behavior was a bit of an eye-opener.

However, as everyone in big business knows, payola, bribes, payoffs and other forms of cheating are all just part of the global domination game played every day around the world. It's like saying the recent Secret Service dalliances in Columbia were the first time that kind of activity ever occurred.

So, with enough negative news to shake down even the most ardent perma-bull, futures blazed red prior to the open and stocks fell quickly at the opening bell, reaching the lows of the day right around 11:00 am EDT. Even though stocks recovered in the afternoon, technical damage was done, with all four major indices closing below their 50-day moving averages, with the broadest measures - the NYSE Composite and NASDAQ - suffering the worst of it.

With all that news sloshing about, Wall Streeters were in no mood to hear that the nation's largest entitlement programs - Social Security and Medicare - would be running out of money sooner than expected. The trustees of the plans released their annual statements, saying that the Social Security trust fund would be exhausted in 2035, three years sooner than stated just last year. It added that the trust fund for its disability program, which serves 11 million people, would run out in 2016, just four years from now. Medicare was slated to go bankrupt in 2024, the same estimated date as last year's forecast, though the projections were based on very conservative considerations.

The impact of these projections are based on congress making no changes to any of the programs, though both Republicans and Democrats have proposed various plans to keep the Ponzi-scheme entitlements going. The reaction to this announcement should be a loud hue and cry from the American public, with proponents and detractors on both sides of the issue, but the reality is that any man or woman aged 45 or less should expect absolutely nothing in future years and consider the "deductions" from their weekly or bi-weekly paychecks nothing more than outright theft by decree.

Overall, today's news and events only paint the picture of global economic collapse in darker shades, with the rush toward implosion seeming to accelerate with each passing day.

One has to consider that having only papered over the immense losses from the 2008 crash, the next serious event could have ramifications far more severe than what was encountered just four years ago. Global leaders are at a loss for solutions other than adding more liquidity to problems that are solvency-based. Metaphorically, it's similar to the BP oil spill in the Gulf of Mexico, hoping that long-term environment problems would somehow be magically whisked away by vastness of the body of water diluting the harmful effects of the toxic spill.

Throwing more money at insolvent institutions - most major banks and the governments of developed and developing nations - won't fix the problems. It will only delay the ultimate solution and make conditions worse for even larger numbers of people.

Meanwhile, in Washington, all the politicians currently care about is getting re-elected, whereas on Wall Street the bankers to the world have proven to be numb to even the most stark global conditions.

Dow 12,926.86, -102.40 (0.79%)
NASDAQ 2,970.45, -30.00 (1.00%)
S&P 500 1,366.94, -11.59 (0.84%)
NYSE Composite 7,938.82, -86.72 (1.08%)
NASDAQ Volume 1,736,082,250
NYSE Volume 3,568,057,250
Combined NYSE & NASDAQ Advance - Decline: 1439-4198
Combined NYSE & NASDAQ New highs - New lows: 47-147
WTI crude oil: 103.11, -0.77
Gold: 1,632.60, -10.20
Silver: 30.53, -1.12

No comments: