Tuesday, June 11, 2013

Stocks Decline Globally as QE and ZIRP Show There are Limits

With losers outpacing gainers by a 4:1 margin, stocks got trashed today around the globe, starting in Japan - which triggered the entire equity rout - and ending here in the USA where the Dow lost 108 points, and, despite that stiff selloff, was still easily the best performer of the major indices on a percentage basis.

The NASDAQ and NYSE Composite took the day's losses the worst, off 1.06% and 1.10% respectively. The S&P dropped by just more than one percent.

The worldwide selling spree was set off when the Japanese leadership declined to extend their bond and market easing measures past what was already in place. Speculators expected the BoJ to increase bond and ETF purchases, but came away disappointed.

That sent the Nikkei and Topix tumbling to the downside, and greeted European investors with markedly negative prospects as their trading day began.

In the US, futures were heavily to the downside, resulting in the indices hitting their lowest points just minutes into trading. Remarkably, stocks came nearly all the way back - with the Dow going positive for a few moments before noon, but the low-volume rally fooled nobody and sellers came back in force to take stocks back down for the rest of the session.

Adding to the already nervous environment, the 10-year note bounced up as high as 2.28%, but ended the day at a relatively benign 2.18%, though fear of higher rates and a tapering of the Fed's bond buying program remained a key market driver in both stocks and bonds.

A fortnight of protests in Turkey finally exploded into a somewhat violent repression by government forces, who used water cannons and tear gas to disperse about 10,000 protesters. Also, late in the day, news broke that the ACLU had filed suit against the US government over the NSA's recently-exposed monitoring of nearly all domestic communications, calling the activity unconstitutional.

This is truly a dangerous environment, both for investors and ordinary citizens. Stocks are hovering in a range just below all-time highs and recent lows, while Washington is awash in scandals ranging from covering up the assassination of a diplomat and others in Libya (Benghazi), to wiretapping reporters to having the IRS harass political opposition. In another time, there would be protests all over the Washington Mall and cries for impeachment of president Obama would be drowning out reasonable discourse. But, Americans have grown so used to government malfeasance and the country has become so dependent on government entitlements that nobody seems capable of raising their voice to an administration and a congress that has trampled the constitution ever since 9/11/2001.

What will it take to shake things up and clean the garbage out of our corrupt-to-the-core political and financial system? A severe market crash? A politician with will and integrity? A hot war in Syria? Something else?

Stay tuned for what should develop into a very contentious, heated summer of pandemonium in markets and politics. The events of the past two to three weeks have been just the warm-up act. The main attraction begins when the cronies turn on each other.

Dow 15,122.02, -116.57 (0.76%)
NASDAQ 3,436.95, -36.82 (1.06%)
S&P 500 1,626.13, -16.68 (1.02%)
NYSE Composite 9,255.44, -102.56 (1.10%)
NASDAQ Volume 1,477,085,500
NYSE Volume 3,854,662,750
Combined NYSE & NASDAQ Advance - Decline: 1286-5251
Combined NYSE & NASDAQ New highs - New lows: 131-308
WTI crude oil: 95.38, -0.39
Gold: 1,377.00, -9.00
Silver: 21.65, -0.279

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