Not Much of an Ouchie for Stocks in Advance of FOMC Party

300 points on the Dow Industrials really isn't a big deal these days. The Fed can make that up in minutes if they so desire. The level of fakery and ridiculous valuations in US equity markets is off the charts. It's like the world is knocking down the downs of these corporations to own a minute fraction of their business, a model, in most cases, that benefits the executives first and shareholders later, if at all.

Take Boeing for instance. Who in their right mind wants to own any of that. A legacy of planes that fallout of the sky and crash, huge bonuses paid to executives asleep at the wheel, mammoth pension obligations that the company will never be able to satisfy are just a few of the salient features of this so-called Blue Chip.

Maybe that moniker should be revisited and the definition revised. Your money will be chipped away until you've lost half or more, and you'll be blue. That would pretty much describe many of the "glamor" stocks touted by the willfully ignorant brokers and boiler room grifters who peddle corporate trash.

Not to say that all corporations are evil or that all investments are bad. Bears are solidly in the minority when it comes to investing, picking stocks, passive indexing, riding momentum or whatever else passes the litmus test at the local retirement home. There are plenty of good investments and good times to make them. Right now, after seeing the fed-pumped run-up over the past 10 weeks, just doesn't feel like one of those times.

The next chapter will be written Wednesday afternoon when all eyes and ears turn to Jay Powell and the FOMC. Being that he's been able to ward off a full-blown depression - by Wall Street standards at least - one wonders if he sees the protesters in the streets day after day, night after night, and wonders whether he is part of the problem.

Probably not. Why worry his little head over something so trivial as two straight weeks of nationwide protests when there's money (currency) to be made, new worlds to conquer and all that noise?

Treasuries yields on the long end of the curve have been decidedly lower over the first two days of the week, the 30-year falling from 1.68% to 1.59% and the 10-year note dropping to 0.81% from Friday's close at 0.91%. With the short end stable, the curve is beginning to flatten out again, something the Fed can hardly avoid happening.

The chit-chat this week has been over something called "yield curve control (YCC)," by the Fed, a real effort that requires skill and diligence to keep bond yields where the central bank wants them. The policy has been in place in Japan for the past four years, with limited success, though the argument from commercial lenders might offer a different theme because they're largely crowded out of the market and have difficulty making profits.

While something of this nature might work all right in a homogenous zombie economy such as is Japan's, and the Fed seems willing to try just about anything to distort markets and conceal price discovery. An experimental yield curve control mechanism should be right up their alley and no doubt they're considering it. Whether the Fed makes their desire to be even more injurious and paralyzing to capital markets publicly known might be a question not raised in polite company. After all, with a word record stock bubble on their hands and the world's reserve currency to babysit, it's unlikely that the Fed would make all their plans public. Some things are better kept quiet, at least until the next crisis.

Argentina watch: It's been a couple of weeks since Argentina actually defaulted on some bonds, missing a $500 million interest payment last month amid a circus of negotiations and proposals that seem to be largely aimed at preventing the triggering of credit default swaps (CDS) and the messy counter-party finger-pointing that is associated with such events. Nobody likes losing money, but, as seems to be the case with the Argentines, there isn't much one can do when there's no good collateral or currency the bond holders are willing to accept, though both sides are trying.

Judging by reportage of the ongoing negotiations it appears that a deal is not about to be struck. Both creditors and the debtor, Argentina's government, seem reluctant to go too far out into the ether. When phrases like "restructuring talks are sparking hopes and tension", "amended proposal", "for a second time sweeten an original offer", "moving June 12 deadline", and "limited further upside" there should be cause for concern, especially when nearly every article on the subject of Argentina's debt "restructuring" ends on a positive note along the lines of "there will be an agreement sooner or later - the difference between the parties is just too small..." one can sense the tinge on panic.

There's supposed to be a final proposal presented either Thursday or Friday, which means probably Friday night some government clerk will slip a note under the hotel door of one of the three major creditors - BlackRock, Fidelity and Ashmore - with an outline of the proposed deal, giving them time to mull it over the weekend.

By Sunday night the world will either hear "we're close to a deal," or "talks will continue Monday" all along both sides well aware that any kind of deal over $65 billion in bonds at this juncture is more sizzle than steak. They're trying to kick the can further down the road, but they're getting dangerously close to the cliff at the end of it.

Finally, US government debt is about to exceed $26 trillion dollars. Trying to get a handle on that kind of number is difficult, but let's start with this: $26,000,000,000,000. Or, how about the burden to every American citizen of $78,600? Kind of makes that credit card debt seem insignificant, doesn't it?

With a run rate of over a million dollars per minute, US national debt, currently $25.92 trillion, increased by nearly $800 billion between April and May and continues at a pace of somewhere between $15 and $20 billion a week. It's possible that the debt will hit $26 trillion by the end of the month, depending on how it's calculated, and we may be able to celebrate the event with fireworks if it happens on or around July 4. If that's the case, remember to social distance and wear a mask.

At the Close, Tuesday, June 9, 2020:
Dow: 27,272.30, -300.14 (-1.09%)
NASDAQ: 9,953.75, +29.01 (+0.29%)
S&P 500: 3,207.18, -25.21 (-0.78%)
NYSE: 12,619.52, -217.08 (-1.69%)