Global Market Demise and I Know Why
Posted on June 23, 2011 at 18:00 PM EDT
Thursday’s global market demise had plenty good reason why investors might head for the door. The NIKKEI narrowed 0.34%, the DAX was down 1.8% and the FTSE fell 1.7%. On any given day there are a slew of reasons why stocks and the broader market might rise or fall, so looking across the globe for a common denominator can be difficult. However, we’re relatively confident we’ve identified the culprit for you.
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.
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Global Market Demise – We Know Why
After taking back significant ground at the close, the Dow (NYSE: DIA, NYSE: DOG) was still down 0.5% and the S&P 500 Index (NYSE: SPY, NYSE: SDS) was short 0.3%. The slide in American stocks followed declines in Asia and Europe. After searching for drivers, I lean heavily towards Europe this time, given its degree of decline versus Asia. If the declines were equal between Asia and Europe, I would have pinned President Obama with the blame, and considered that his statement Wednesday evening with regard to nation building at home (versus in Afghanistan) took away a degree of certainty global markets have grown quite used to regarding the United States’ willingness to police the world. However, it looks as though this was not the case, despite my feeling that it should be considered overseas. We have evidence of it in Libya and now Afghanistan.
Given that the decline started before American markets opened, we can rule out the possibility of new labor market data in the U.S. driving it. Weekly Initial Unemployment Insurance Claims increased by 9K in the latest reported period, taking new benefits filers up to 429K. That certainly didn’t help matters, but it is not the source of the day’s demise either.
Thus, the day’s dastardly driver must have originated in Europe, and we can be fairly certain of that thanks to the decline of the euro as well. Europe’s most significant market moving news derived from the European Banking Authority (EBA). The EBA warned area banks to be more realistic about their Greek debt holdings. In other words, most of Europe’s financial institutions with exposure to Greece have not accounted adequately for the possibility of a Greek default. You can bet they have not even pondered a Portuguese pitfall.
The EBA will be announcing results to its latest stress testing of 91 European banks around July 13. The regulator said it had given its banks guidance to “address inconsistencies and excessive optimism” on sovereign exposures. If that did not feel like a slap to the face, we suppose European investors might still get it when they reach home this evening to their portfolio perusing wives.
The EBA test will consider how its banks might fair through a two-year recession. What’s new about the situation is that previously European politicians and also regulators like the EBA have not even given sovereign default a note of consideration. Given the latest uproar around the release of the current tranche of support to Greece, and debate about how well Greece is managing austerity (you should be envisioning rioting now), it would seem default is becoming digestible among despots. Its repercussions had neither been accounted for completely by trusting investors, and so the day drew market ire and capital withdrawal. More bad breath was borne from the mouth of the European Central Bank head, Jean-Claude Trichet. The ECB chief raised alarm in Europe when he said financial stability for the region was “flashing red.”
The day’s earnings included Lennar (NYSE: LEN), ConAgra Foods (NYSE: CAG), WellPoint (NYSE: WLP), Discover Financial Services (NYSE: DFS), Cisco Systems (Nasdaq: CSCO), Oracle (Nasdaq: ORCL), Accenture (NYSE: ACN), Cyanotech (Nasdaq: CYAN), Finish Line (Nasdaq: FINL), H&R Block (NYSE: HRB), Micron Technology (NYSE: MU), Rite Aid (NYSE: RAD), TIBCO Software (Nasdaq: TIBX), Deutsche Bank (NYSE: DB), Banco Santander (NYSE: STD), ITA (Nasdaq: ITUB), UBS (NYSE: UBS), Westpac Banking (NYSE: WBK), Lloyds Banking Group (NYSE: LYG), Barclays (NYSE: BCS), Credit Suisse (NYSE: CS), Allied Irish Bank (NYSE: AIB), Banco Latinamericano (NYSE: BLX), National Bank of Greece (NYSE: NBG), Royal Bank of Canada (NYSE: RY), BBVA Banco Frances (NYSE: BFR), The Bank of Ireland (NYSE: IRE), Bank of Montreal (NYSE: BMO), Canadian Imperial Bank of Commerce (NYSE: CM), ING Groep (NYSE: ING), Citigroup (NYSE: C), SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).
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Accenture Cl A Affiliated Managers Group, Inc. Ameriprise Financial Asset Acceptance Capital Corp. BBVA Banco Frances S.A. ADS BGC Partners, Inc. Banco Latinoamericano de Comercio Exterior S.A. Banco Santander S.A. ADS Bank of Montreal Bank of New York Barclays PLC ADS Blackrock, Inc. CIT Group, Inc. COWEN GRP-A Calamos Asset Management, Inc. Canadian Imperial Bank of Commerce Cisco Systems, Inc. Citigroup, Inc. Cohen & Steers, Inc. ConAgra Foods, Inc. Credit Suisse Group ADS Cyanotech Corp Deutsche Bank AG Diamond Hill Investment Group Discover Financial Services E TRADE FNCL Encore Capital Group, Inc. Epoch Holding Corp. Equifax, Inc. Evercore Partners Ezcorp, Inc. FBR Capital Markets Corporation FINANCIAL ENGINES Federated Investors, Inc. Fidelity National Financial, Inc. Finish Line First Cash Financial Services First Marblehead Corp. GAMCO Investors GLEACHER & CO Goldman Sachs Group, Inc. Greenhill & Co., Inc. H&R Block, Inc. ING Groep N.V. ADS INTL FCSTONE Interactive Brokers Group, Inc. IntercontinentalExchange Intersections, Inc. Invesco Limited Investment Technology Group, Inc. JMP Group Janus Capital Group, Inc. Jefferies Group, Inc. KBW, Inc. Knight Capital Group Ladenburg Thalmann Financial Services, Inc. Lazard Class A Legg Mason, Inc. Lennar Corp. Cl A Lloyds Banking Group PLC ADS MGIC Investment Corp. MarketAxess Holdings, Inc. Marlin Business Services Corp MasterCard Cl A Moodys Corp. Morgan Stanley NASDAQ OMX Group, Inc. NETSPEND HLDGS NYSE Euronext National Financial Partners Corp. Nelnet Inc. Cl A NewStar Financial, Inc. Northern Trust Corp Ocwen Financial Corp. Oppenheimer Holdings, Inc. Oracle Corp Pico Holdings, Inc. Piper Jaffray Cos. Portfolio Recovery Associates PowerShares QQQ Trust, Series 1 ProShares Short Dow30 ProShares Ultra QQQ Raymond James Financial, Inc. Rite Aid Royal Bank Of Canada S&P DEP RECEIPTS SEI Investments Co SPDR Dow Jones Industrial Average ETF Trust SWS Group, Inc. Safeguard Scientifics, Inc. State Street Corp. Stifel Financial Corp. T Rowe Price Group, Inc. TIBCO Software, Inc. UBS AG Virtus Investment Partners, Inc. Visa WellPoint, Inc. Westpac Banking Corp. ADS
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