The averages closed down fractionally from the mornings highs and then traded sideways for most of the afternoon session on sometimes anemic volume. WTI oil settled higher, but sub-$40 levels may be on tap in the coming week say analysts following steep losses in Chinese stocks and a downbeat outlook from Wal-Mart Stores Inc.
Todays S&P 500 Chart
"We're in the summer doldrums," said Jim Paulsen, chief investment strategist at Wells Capital Management. "Most people are staying cool on the lake somewhere." Another reason for the general aimlessness of the market, Paulsen said, is that the news hasn't been all that surprising. "People know about China's problems, they know about falling commodity prices," he said. "They've digested a lot of the news that's out there already."
Richard Hastings, macro strategist at Global Hunter Securities, said that the bias for oil is lower. "Fears of a sustained slowdown in China is oil's biggest hurdle," said Phil Flynn, senior market analyst at Price Futures Group. But "China is throwing a lot of money and stimulus which could keep oil demand strong," and that's likely providing some support to oil prices, he said. He said $39 a barrel is "easily achievable for WTI crude oil in the coming week."
(Reuters) - JPMorgan Chase & Co is in advanced talks with U.S. regulators to pay more than $150 million to resolve allegations that it steered private-banking clients to its own products without proper disclosures, the Wall Street Journal reported, citing people familiar with the matter.
(Reuters) - Wells Fargo is building more branches devoted to car loans and financing for auto dealers in an effort to increase its auto lending business without taking bad credit risk, the bank's head of car lending told Reuters.
(Reuters) - Bank of New York Mellon Corp will pay $14.8 million to settle U.S. civil charges it gave internships to family members of officials linked to a Middle Eastern sovereign wealth fund, violating federal bribery laws.
With oil prices pushing cycle lows and Shale firms as loaded with debt as they have ever been, the spike in energy sector credit risk should come as no surprise as the hopes of the last few months are destroyed. At 1076bps, credit risk for the energy sector has never been higher. As UBS recently warned, more defaults are looming and, as we discussed this week, private equity is waiting to pick up the heavily discounted pieces.
As we noted previously, as for the defaults well, they're on their way UBS thinks, as evidenced by recent events such as American Eagle Energy's "Movie Gallery" moment:
Where are the defaults? They're coming: we've seen Quicksilver Resources and Dune Energy, are likely to see American Eagle Energy, RAAM Global Energy, Venoco and thereafter perhaps Connacher Oil & Gas, Samson and Sabine Oil & Gas. Most E&P firms had hedges in place for 2015; defaults typically lag by about 12 months and the clock started ticking late last year.
We'll close with the following from "Is The Stage Set For A High Yield Meltdown?":
(Reuters) - Wal-Mart Stores Inc reported weaker quarterly earnings and lowered its annual forecast on Tuesday, as it copes with higher labor costs, a squeeze on pharmacy margins and sliding sales at its British supermarket chain.
(Reuters) - Target Corp said it has reached an agreement with Visa Inc card issuers to reimburse up to $67 million in costs related to a data breach at the retailer in 2013, according to a source familiar with the matter.
The US and world economies are frauds that are coming unraveled. The Greek bailout is the most recent example of "kick the can down the road" solutions. The US housing bubble was an attempt to cover up/recover from the dot-com bust. Now the US is in a financial bubble engineered to recover from the housing bubble debacle. Soon this bubble will burst. Only the date is unknown.
Two predictions can be made with reasonable confidence:
The stock market is likely to be halved and that might be optimistic. Only the date is unknown.
The economy will eventually resemble the Great Depression. Only the date is unknown.
Nothing is ever certain. An experienced CFO told me at the beginning of my career that "even the impossible has a 20% probability." In deference to him and years of empirical evidence, I put the the above two events as virtually certain, i.e., an 80% probability.
The Current Problem
Phoenix Capital provided reasons to expect horrible outcomes:
The REAL problem for the financial system is the bond bubble. In ...
BERLIN (Reuters) - German lawmakers broke off their holidays on Tuesday to debate Greece's third bailout plan before approving it, though Chancellor Angela Merkel faces a rebellion in a vote shaping up as her last chance to keep Athens in the euro zone.
WASHINGTON (Reuters) - U.S. housing starts rose to a near eight-year high in July as builders ramped up construction of single-family homes, suggesting that the economy was firing on almost all cylinders.
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