Get ready for one of those days where people say a lot about not wanting to be “long going into the weekend.” Except perhaps in bond markets, where the rush to government debt intensified with President Obama’s remarks that the US is ready to provide air support through airstrikes against ISIS, which now controls a big swath of Syria and Northern Iraq. That’s forced a big move into U.S. and German yields, among other things, which is undermining some of the recent strength in the dollar as well. (That’s not to say it’s a strong-euro move, more of a weak-dollar move, given the declines in the dollar against the yen as well.)
To paraphrase Kevin Costner in Bull Durham, we’re dealing with a lot of stuff here. The U.S. economy did end up rebounding in the second quarter, with a 4 percent rate of growth that’s much better than anyone anticipated – and the first-quarter decline was revised to something less horrible, so investors worried about the economy are a bit less freaked out at this particular moment.
Red letter day for Argentina comes tomorrow, with the holdout investors and the South American nation coming down to the wire on a potential deal that would offer the holdouts something better than what everyone else agreed to in 2005 and 2010. Without getting into issues of vultures vs. violating debt agreements, the situation probably comes down to three scenarios.
The market’s recent chatter has revolved specifically around whether the strength in the jobs figure from last week moves forward the expected timing of the first interest-rate hike from the Federal Reserve.
Eventually, lack of volatility, rock-bottom rates and this accommodating monetary policy will realize the build-up of excesses that causes some kind of market crack that devastates people – particularly in areas where many do not expect it. But it won’t be today, and investors should continue to ride that so-called Wall of Worry through the 2,000 mark on the S&P 500 before long.
Wednesday’s version of reading tea leaves involves Argentina’s economy minister Axel Kicillof, who will be in New York to speak to the United Nations about Argentina’s debt situation. In case the U.N. missed it, Argentina defaulted a while back – 12 years ago – and they’ve been fighting with a group of investors on paying some of their debt since. Which is a roundabout way of saying Kicillof may not just be in New York to talk to the U.N., not when NML, Aurelius and the other holders are all also in New York too, and the judge in question, and any special envoy he introduces to try to wring some kind of compromise out of this situation. There’s a big coupon payment due June 30, and the country has been prohibited from doing so unless it pays the holdouts, which it has pledged not to do, giving it a 30-day grace period before being declared in default.
There’s nothing dull these days about the bond market, which is exhibiting an unforeseen, profound level of strength that’s spread through the various asset classes on the fixed income side, and that continues to remain unexpected for the most part.
Investors will get a look at the Federal Reserve’s thinking later on Wednesday in an otherwise quiet week when the Fed releases minutes from its April get-together. There may be a bit in the way of more up-to-date thinking in some of the scheduled Fed speeches, notably Bill Dudley of the New York Fed, along with Fed Chair Janet Yellen later in the week.
If the U.S. economy indeed is going to shake off the weather-related problems and push higher in coming months, one of its biggest bettors is likely to remain Warren Buffett, whose Berkshire Hathaway reports results this weekend in addition to its Omaha confab that brings in investors, fans and interested parties alike, where Warren and Charlie Munger will sip Coke, talk up their investments and reveal what else it is they’re looking at about now. Buffett famously couldn’t find a bear on Berkshire this time around (bears on Berkshire being the market’s equivalent of the Washington Generals, just looking to be a punching bag), so they’ll have other analysts asking them questions, with one of the more pertinent ones surrounding what companies Buffett might be eyeing for potential acquisitions in the coming years.