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.
Goldman Sachs strategists note in a piece overnight that volatility is likely to remain lower for longer, but the slowness of the economic expansion and the additional regulations as a result of the financial market crisis of 2008 mean that the buildup of those speculative excesses is happening at a much slower rate. That’s not to say they aren’t out there – Brian Reynolds of Rosenblatt Securities is adamant that we are now in a “runaway bull market,” which of course usually ends in tears for someone, but again, not today.
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.
So the thing to watch for is something like a clandestine meeting between all parties to find a way to reach an accord, even if it’s the kind of thing that comes down to the July 30 wire – when Argentina would be considered in default again (double-secret default, as Dean Wormer would have it, and really, if John Vernon were alive, he’d have solved this mess a long time ago).
A few thoughts as the market heads into a relatively quiet week featuring mostly Federal Reserve speakers and a few other random events that aren’t likely to knock the market to its knees:
Bear markets don’t just start “because,” as Dan Greenhaus of BTIG puts it. Usually there are a few factors, but most often it’s some combination of speculative excess, tightening rates, and a reduction in that bit of froth in an area that’s crucial to the bull market or economic expansion in question. When technology investing money dried up and the companies that sold shares to the public foundering on a lack of earnings, the tech bubble was unwound pretty quickly. The financial crisis came about as banks became unable to handle the volume of debt that had been sold and as the Fed raised rates, sapping demand in the “greater fool” housing market, and as the banks ate themselves under synthetic products that weren’t anything underlying. So with that in mind, what’s the speculative excess now? Probably the overall thing is ultimate low rates, because when that does go, the market is going to view growth differently.
The expectation for higher rates is a primary underpinning for overall investor nervousness. If rates are higher, the expansion is threatened, and inflation becomes an issue. It’s not that those conditions exist now, but the prevailing view for rising rates explains in many ways why this bull market is as loathed as it is. People remain wary of making bets in this market, even if retail investors would have been handsomely rewarded by getting in at any morn, so that’s point in favor of them rather than against.
Higher rates often do end up killing a lot of bull markets – and economic expansions – so the inflation figures and the Fed members’ beliefs related to the threat of rising prices are all important, and we’ll attempt to make sure of the chatter coming from the likes of Charles Plosser, Jeff Lacker and John Williams. So that’s the second team when it comes to Fed speakers (Bill Dudley also speaks, but the Puerto Rican economy is the topic) in terms of influence, but still, those views remain important.
Complacency isn’t a “thing.” As Luciana Lopez and Jennifer Ablan wrote about late last week, the VIX being low isn’t a workable assessment of the concerns thousands of investors have about the equity market and economy, particularly when the VIX really only reflects expectations for volatility in the coming couple of weeks and not in any long-term kind of way. So yes, the VIX around 10 doesn’t make a lot of sense until you remember it’s been about 45 cays where the index hasn’t even hit a 1 percent change – so realized volatility has been in the 4 percent range.
NEW YORK (Reuters) – Lawyers for Argentina and for hedge funds that did not take part in its debt restructuring are scheduled to appear in federal court in New York on Wednesday in what could be a last-ditch attempt by the country to avoid default.
The news follows a Tuesday speech in Buenos Aires by Economy Minister Axel Kicillof, who said Argentina is taking steps so it can continue paying the vast majority of bondholders who agreed to a debt restructuring in the last several years – without paying the holdouts.
June 18 (Reuters) – Argentina’s debt prices fell again on
Wednesday, as investors reacted to the South American nation’s
newest proposal to place its restructured debt under local law
after a series of adverse U.S. court rulings.
Economy Minister Axel Kicillof said on Tuesday that the
country is taking steps to swap bonds governed by U.S. law for
those governed by Argentine law so they would not be subject to
U.S. courts that have made paying existing bondholders more
By David Gaffen
(Reuters) – American companies can expect progress on some critical U.S. trade initiatives if the Republican Party takes control of both houses of the U.S. Congress this November.
A Republican victory in the Senate may prevent the chamber’s Democrats, backed by labor unions concerned about the impact of free trade on American jobs, from blocking trade legislation favored by both President Barack Obama and Republican leaders.
NEW YORK (Reuters) – Escalating violence in Iraq drove crude oil prices to nine-month highs on Friday while damping the appetite for risk, even as bullish news from the U.S. tech sector lifted shares on Wall Street and helped buoy stocks in global equity markets.
Brent crude edged above $113 a barrel, up more than $4 this week, on concerns that an insurgency in Iraq could trigger civil war and eventually crimp oil exports.
NEW YORK/LONDON, (Reuters) – Escalating violence in Iraq drove oil higher and sent stocks lower on Friday, putting a global equity index on track for its first weekly loss in five weeks.
Wall Street was little changed, but U.S. averages were set for their first loss in four weeks, while European shares .FTEU3 were set to interrupt eight weeks of gains. The MSCI All World Index fell 0.2 percent and is down 0.5 percent for the week.
LONDON (Reuters) – Escalating violence in Iraq drove oil higher and sent stocks lower on Friday, putting a global equity index on track for its first weekly loss in five weeks.
Wall Street was little changed, but U.S. averages were set for their first loss in four weeks, while European shares .FTEU3 were set to interrupt eight weeks of gains. The MSCI All World Index .MIWD00000PUS fell 0.2 percent and is down 0.5 percent for the week.
Riskiest markets saw their first hiccup in a while in the last couple of days, with a 100-point loss in the Dow Thursday that has raised a bit of concern for the first time in ages, it seems. Of course, 100-point drops in the Dow aren’t really what they used to be, but that doesn’t mean this nascent selloff should be ignored. Worldwide issues – the sudden rise in oil prices on the growing insurgency in Iraq – have investors backing away from equities and shifting a bit into safer assets like the Treasury market. The indirect bidders in Thursday’s auction of 30-year notes took the highest amount of the auction since 2006, perhaps as a way to offset worries about weak growth worldwide and the uncertainty in the Middle East.
The declines translated directly to the transportation stocks, where a confluence of factors have conspired to knock down the likes of airlines (just when they stopped seeming so horrible as investments). Lufthansa’s warning earlier in the week brought some fresh worries about discretionary spending, while the rise in oil prices translated directly to a falloff in the airlines.