Highlights
Finally,
at long last, the Greeks decided to pass austerity measures in a 199-70 vote in
favor of the cuts. They lowered minimum
wage, cut government labor, and proposed to remove benefits in a sweeping reform
that sent markets higher. I imagined
such a day would bring a 2-3% shot up in markets given the down days we have
recently experienced. Instead, the DOW
rose a measly 0.57% with the S&P and NASDAQ posting similar gains. What caused such a muted reaction? Well, for the Greeks to actually get the €14.5
billion of the €130 billion bailout from the EU and IMF, the Greeks must
specify the a portion of the exact cuts to be taken as well as send the EU a written commitment
to actually follow the terms of the proposal.
It seems that the Euro zone is finally realizing that money thrown at
Greece is likely not to be recovered and it may make better sense to let them
default and exit the Euro. The question
remains, is what happens under a defaulting scenario?
Surely people will try and run the banks in fear of their bank being the
Lehman of a potential Euro crisis. The
Greek economy will face much more severe contractions and the people will
probably revolt, but this time full fledge. It will be interesting to see what
the EU and IMF decide come Wednesday. Beyond
this, 100,000 Greeks set Athens ablaze in violent and disruptive protests. Yes, 100,000, and given that Greece has
around 11,000,000 people, this would represent nearly 1% of their population. This is a staggering number and makes you
wonder if the government did all they could if Greece is even able to be
saved. Don't even get me started on
Portugal. They may be the next domino to
fall in the chain. After being pro the
Euro recovering as little as a day ago, I now realize that the people may make
this not even a possibility. Here is a
nice picture of Athens ablaze last night:
Beyond
Greece, there was little action in the
US markets. There were a few t-bill
auctions, but nothing special. Crude was
halted midday on what was labeled a "technical glitch" by the
CME. There is speculation that an algo
went wrong and the CME caught this one before we experienced an oil flash
crash. There weren't any crazy earnings
reports to note. Apple did break $500 on
the day as there is speculation of a dividend and the iPad 3.
Equities
Stock
markets were relatively boring on the day. Nearly all markets finished close to
where they started. The S&P 500 did
close above the psychological barrier of 1350.
The main wonder is whether it can hold it this time as last year the
market hit over 1370 before crashing hard over 300 points in all. The VIX was down and finished at 19, low given
the risks in the market. Priceline
(PCLN) was the biggest gainer on the S&P with a 4.8% pop followed by
International Paper (IP) and Fastenal (FAST).
Biggest losers on the S&P were First Solar (FSLR) with a -5.0% drop
followed by TripAdvisor (TRIP) and Netflix (NFLX). On the DOW, Bank of America (BAC) continued
its hot year with the largest pop at 2.2%.
Rates and Fx
I
am still a treasury bear long term, but short term, risk remains. Bill Gross added to his position in
treasuries as well. I will be especially
curious as to what happens after tomorrow's import/export prices report. The 30 year finished down 1 bp at 3.11%, same
with the 10 year (1.96%), and the 7 year (1.36%). Somewhat related to rates, but I think extremely
telling, individual central banks in the Euro zone are expanding the types of
assets they can take as collateral. This
is English for the banks do not have collateral to meet their needs and the
Central Banks are helping them out. I
was amazed that the European banks were not just absolutely punished on the
news. If I was long a European bank, I
would suggest an exit as the upside does not compensate a 0 on the
downside. In FX news. the Euro was down
on the day settling most recently at 1.3161 $/Euro. The Yen actually sold off heavily as the
BOJ announced a surprise asset purchase program enlargement. Most recently the Yen was quoted at 77.88
Yen/$. The pound also finished down on
the day to settle at 1.5707.
Commodities
As
mentioned before, Crude was halted on the day.
WTI Crude finished at $100.53 down $0.38 on the day with Brent at
$117.20. Spot gold finished at
$1,716.39, down $6.10. Natural gas continued its descent finishing at
$2.44. This price continues to be
unsustainable, but with supply and production well above demand, it's hard to
see a short term recovery in prices. I
am still very bullish NG's longer term prospects as the US starts to make use
of this energy source in greater quantities.
Coffee futures dropped to $214.60, down 1.29% on the day.
Tomorrow
Should
be a much more interesting day. First,
Zynga(ZNGA) reports its first earnings since filing for public status. This should provide light on the health of
Facebook before its IPO as Zynga accounts for a large portion of revenues. Regal (RGC) is another name I would watch for earnings. In economic news, Retail Sales are going to
be a metric for the health of the consumer as well as inventories and import
and export prices. Import and export
prices will be one I will especially be watching as the argument for QE3
continues to be brought up. The only
thing I feel that stops this initiative is the potential for inflation picking
up.
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