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23Jun2015 Market Close: Markets Close In The Green, Investors Expecting A Market Reversal

Written by Gary

Markets closed flat and in the green, but the Nasdaq Composite Index finished to a record close. Short-term indicators are mixed, but tipping towards the bearish side with another spinning top candle like yesterday signaling a reversal in market direction.

Todays S&P 500 Chart

The good news is the gauge of U.S. business investment spending plans rose in May, a tentative sign that the manufacturing sector was stabilizing.

The bad news is that the euro was on track to post its biggest daily decline against the dollar in a month, as a resolution to the latest installment of Greece's debt crisis appeared at hand.

The Market in Perspective

Here are the headlines moving the markets.

Greek government confident despite backlash over debt deal

ATHENS (Reuters) - Greece's leftwing government expressed confidence on Tuesday that parliament would approve a debt deal with lenders, despite an angry reaction from some of its own lawmakers who accused it of caving in to pressure for more austerity.

The Ultimate Moral Hazard: 70% of Greek Mortgages Are In Default

Just as we warned earlier in the year, total uncertainty about the future of Greece has enabled a growing sense of moral hazard as "if the nation doesn't pay its debt, why should we" sweeps across the troubled nation. As Greeks' tax remittances to the government, which were almost non-existent to begin with, have ground to a halt, so The FT reports, so-called 'strategic defaults' have become a way of life among Greece's formerly affluent middle-class..."I still owe money on the car and motorboat I can't afford to use. Even a holiday loan I'd forgotten about...I'm living with my mother looking for work and waiting for the bank to come up with another restructuring offer."

As we detailed earlier this year, it appears taxpayers everywhere are learning from the best: their insolvent governments. In this case, Greek (non) taxpayers have decided to slow down their mandatory remittances to the government even more because the government may just not exist in two short weeks:

Most taxpayers have chosen to delay their payments, given that the positions of the two main parties leading the election polls are diametrically opposite: Poll leader SYRIZA promises to cancel the ENFIA and even write off bad loans, while ruling New D ...

Early Sales Bump Puts Spring in Home Builders' Step

Home builders got a bigger lift than many expected from this year's spring selling season, with new-home sales rebounding strongly from the industry's lackluster 2014.

BlackBerry shares fall as doubts on software revenue emerge

WATERLOO, Ontario (Reuters) - BlackBerry shares fell on Tuesday as doubts surfaced about the sustainability of the sharp growth the former smartphone pioneer reported in crucial software revenues, an area BlackBerry's CEO said he will augment via acquisitions.

Why The IMF Will Reject The Latest Greek Proposal In Just Two Numbers

As we summarized earlier, the latest "final" Greek proposal is in trouble: it may very well not pass the Greek parliament due to mounting objections among all parties not least in Tsipras' own Syriza. But a Greek parliament vote on the decision may be moot: according to Bloomberg, Tsipras will fly to Brussels on Wednesday, where he will meet the heads of the Troika: Draghi, Juncker and, of course, Christine Lagarde.

It is the IMF's head that will tell Greece to go back to the drawing board.

Recall that as the WSJ reported, "the Washington-based IMF has said Greece's economy is already too heavily taxed and that too many additional tax increases would hurt economic growth, making it harder to pay down Greece's debt."

Also recall that as IMF's Olivier Blanchard explicitly demanded, Greece needs to cut spending, not hike taxes - which it has patently demonstrated it is incapable of collecting - and especially pensions: "Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP. We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners."

So why will the IMF throw up al ...

China Market Feels Malaise of Good Economic News

With China's dire economic outlook receding, investors are rightly growing nervous the central bank's largess could fade sooner rather than later.

As Chinese Try Stocks, Indians Go for Gold

The rapid run-up in Chinese shares this year is dimming the allure of another popular investment: gold. Luckily for fans of the metal, demand is looking healthy in India, the other big retail market in Asia.

Platinum Slammed by Supplies

Platinum tumbled to a six-year low, weighed down by a surge in supplies since miners returned to work last year after a strike.

The "Smart Money" Just Sold The Most Stocks In History

Last week, following the Fed's latest rate hike punt, stocks soared higher after realizing that not only is the Fed not ready to hike, but it will almost certainly not hike in September nor December (as the country will be covered by GDP crushing snow then). And despite some modest selling on Friday as the first images of Greek ATM lines spread, the S&P still finished nearly 1% higher for the week.

Any other week this would have been a perfectly normal event but according to Bank of America last week, this was not any other week. In fact, according to BofA's Jill Hall, "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clientsâ€"after three weeks of net buying, institutional clients' net sales last week were the largest in our data history."

What was sold? Pretty much everything, although mostly large caps:

Net sales last week were chiefly due to large caps (biggest sales ever of this size segment), though small and mid-caps also saw outflows.

Institutional clients were broad-based net sellers of stocks in all ten sectors last week, led by Financials and Tech. Only ETFs saw (small) net buying by this group.

Hedge funds were net sellers of eight of the ten sectors last week, led by Health Care and Materials. Only Tech and Utilities, along with ETFs, saw net buying by this group.

U.S. Manufacturing Shows Signs of Stabilizing, New Data Suggests

The Commerce Department also said on Tuesday that nonmilitary capital goods orders excluding aircraft rose 0.4 percent last month.

Branson says Virgin Cruises will sail out of Miami in 2020

MIAMI (Reuters) - Richard Branson's Virgin Cruises will take delivery of three ships capable of carrying nearly 3,000 passengers each starting in early 2020, the British entrepreneur told reporters during a news conference on Tuesday.

Wall St. Ticks Upward, With Greece Talks at Forefront

Darden Restaurants, the parent company of Olive Garden, reported strong sales and its stock moved higher.

June 2015 Chemical Activity Barometer Rises. Represents an Acceleration Not Seen Since 1Q2011.

from the American Chemistry Council

The Chemical Activity Barometer (CAB), increased by 0.7 percent in June, followed by a similar gain in May, and an upwardly revised 0.5 percent gain in April. The pattern represents an acceleration of productivity not seen since the first quarter of 2011.

U.S. manufacturing may be stabilizing; housing gains steam

WASHINGTON (Reuters) - A gauge of U.S. business investment spending plans rose in May, a tentative sign that the manufacturing sector was stabilizing after hitting a soft patch in recent months.

Hotel Chelsea, Storied Haunt of Dylan and Burroughs, Becomes Wall Street Money Pit

The redevelopment of New York's iconic Hotel Chelsea is running at least a year behind schedule, is over budget and has spurred disagreements between its owners.

Dollar Rises Against Euro

The euro was on track to post its biggest daily decline against the dollar in a month, as a resolution to the latest installment of Greece's debt crisis appeared at hand.

AT&T and DirecTV: Turn On, Tune In, Stand By

Acquiring DirecTV will boost AT&T's cash flow and protect its dividend. But the deal's long-term strategic value has yet to be proven.

Jay-Z's Music Streaming Service, Tidal, Loses Another Chief

Peter Tonstad, who was installed as interim chief executive in April after the departure of Tidal's last chief, has left after two months on the job.

If Greece Defaults, Will The Fed (& US Taxpayers) Bailout Europe?

With The IMF (and Germany to a less extent) apparently peeing in the Greek Deal pool, perhaps it is worth considering what happens next if this "Greece is rescued" deal is not done. Who can save Greece? Who will pay The IMF? Why, that's simple, the good ol' American taxpayer thanks to The Fed's lifeline...

As The Menger Center's Paul-Martin Foss asks, If Greece Defaults, Will The Fed Bailout Europe?

[Once again] there's every indication that things could come to head next week. If Greece does default, and if there is a resulting crisis in European markets, will the Federal Reserve get involved? To quote Sarah Palin, "You betcha!" How would the Fed do this? Read on to find out.

LiquiditySwaps

Although the euro is the dominant currency in Europe, a lot of debt in Europe is still denominated in dollars. The dollar being the world's reserve currency and dollar markets being incredibly liquid, it just makes sense for a lot of companies to do business in dollars. But when a crisis hits and those businesses need dollars, they have to get a hold of dollars somehow. Banks in Europe have a limited supply, and once those dollars are gone, there is no dollar-printing central bank in Europe that can step in. Enter the Federal Reserve.

The Fed sets up liquidity swap lines with the ECB. ...

The Unspoken Tragedy In The Upcoming Greek Bailout

A day after Tsipras stunned both his peers at the Eurogroup summit, and not to mention his fellow parliamentarians, many of which already voiced their opposition to what has been dubbed a "capitulation" by the Greek prime minister over threats of a financial system collapse if there is no deal within the week, many questions remain:

  • will the Troika come back with even more demands such as boosting the hotel and restaurant VAT even higher (economic suicide for a nation where tourism is the only viable industry)?
  • will the IMF concede that the Greek proposal will ever be sufficient if it does not incorporate the demanded pension cuts?
  • will the deal pass Greek parliament; will a deal come too late to save the insolvent Greek banks?
  • will Greece get a debt haircut (paradoxically as demanded by the same IMF which is also demanding spending cuts instead of tax hikes, over the objections of the ECB which holds the vast majority of Greek debt and is leery of impairments)?
  • will the German parliament agree to validate any deal that may end up splitting Syriza in two or more factions?

While stock markets are convinced a deal is inevitable, after all the can must be kicked as it has been for the past five years...

... that may be more problematic than the algos expect. Here are some quotes showing that despite Tsipras' capitulation, few if any are ready to follow in his footsteps:

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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