- Another trading shutdown — with precious little explanation
- Chinese market now down 32% in 26 days: Faber and Rickards weigh in
- The China story that will be more important long term
- Greece and the Fed are also making today, umm, “interesting”
- Silver Eagle sales suspended… Eric Holder’s cushy new/old gig… another unlikely consequence of Colorado’s legal pot… and more!
“Nasdaq still hasn’t explained why it shut down trading for three hours in August 2013.”
The words of Jim Rickards, spoken months ago, ring in your editor’s ears as lunchtime approaches on the East Coast. You’ve likely heard by now the New York Stock Exchange shut down all trading at 11:32 a.m. EDT, and orders open at that time have been cancelled.
As with the Nasdaq outage two years ago, explanations are few and far between. Someone on Bloomberg TV says a “technical issue” cropped up with a few dozen ticker symbols at 8:21 this morning, which then snowballed to a few hundred and then a few thousand.
Hackers? Who knows? Homeland Security has been quick to say there’s “no indication” of it.
We could spend all of our 5 Mins. speculating what happened — which at this early stage of the game would be entertaining but not very enlightening. So while we wait for something to shake out, we cast our gaze at a multitude of other events shaking up the exchanges that remain open…
“Beijing is throwing everything and the deep-fry wok at the markets to try and stabilize them,” writes Greg Guenthner of our trading desk. “The big joke now is that they’ll just give up and make it illegal to sell shares.”
Some joke. Moments after Greg’s Rude Awakening hit subscriber inboxes this morning, Bloomberg posted this story: “China’s securities regulator banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, the latest effort to stop a $3.5 trillion rout in the nation’s equity market.”
About half of China’s listed companies have suspended trading anyway — up from about a third yesterday. Still, the Shanghai Composite Index slid another 6% today.
That’s a 32% drop from the peak on June 12. On the other hand, it’s still up 72% from this time a year ago.
“I have mentioned before that a 40% correction in Chinese stocks should be expected?” writes the estimable Marc Faber in his latest Gloom, Boom & Doom Report.
“This would likely lead to weakness in other Asian stock markets as well. Should Asian stock markets decline more meaningfully (by 20% or more), it is likely that there would be a spillover effect, which would spread to Europe and the U.S. as well.”
Tumultuous, for sure, but not the end of the world. “China may have a multibillion-dollar meltdown,” our own Jim Rickards explained in Monday’s Daily Reckoning, “but it has a multitrillion-dollar fire hose in the form of its official reserves.”
For what it’s worth, Chinese state media are taking the longer view. The business programming on English-language CCTV News acknowledges the market turmoil, but it’s not the big story…
Ufa, Russia, is the scene of two summits this week. First come the BRICS nations — Brazil, Russia, India, China, South Africa. At the top of the agenda is the launch of something called the New Development Bank — a competitor to the World Bank and International Monetary Fund.
Then comes the Shanghai Cooperation Organization — comprising China, Russia and four of the central Asian “-stan” countries. India and Pakistan are likely to join this week.
Both groupings amount to what Jim Rickards labels an anti-dollar alliance. “All of these countries,” he said here in The 5 last December, “are clear about their desire to break free of U.S. dollar dominance.”
[Ed. note: “China is also getting ready to launch its first crude oil futures contract denominated in yuan,” Jim adds in his latest special report. “This will give China greater influence in global pricing of oil, putting the petrodollar in danger.
“And it’s not just oil. China is conducting trials to launch a yuan-backed gold pricing benchmark. This means China could soon become the price setter for gold bullion. This new Chinese gold price benchmark may be launched before the end of the year, posing another major threat to the dollar.”
If you haven’t seen Jim’s latest briefing, we urge you to check it out now. If you’re older than 45, it’s especially important. Here’s the link — there’s no long video to watch.]
Greece, you ask? Still in suspended animation. The government of Prime Minister Alexis Tsipras has submitted a formal request for its third bailout. Because the first two for $265 billion haven’t been enough.
So much for Tsipras’ promises to get his nation off the perpetual hamster wheel of debt. But we knew the wind was blowing that way when his voluble finance minister Yanis Varoufakis quit on Monday.
Tsipras is promising to submit a “credible” reform proposal by tomorrow to justify the bailout. The European Union will likely decide on Sunday.
And into this cauldron we throw another ingredient today — the Fed.
We’d nearly forgotten about the Federal Reserve in the course of assessing these other market brush fires the last few days. But the Fed comes back in view this afternoon, around the time this episode of The 5 hits your inbox, with the release of the minutes from its meeting last month.
As we’re wont to remind you, Fed minutes aren’t like the minutes from your local sewer board. They’re not an objective record of who said what. If you want transcripts, you have to wait five years. Instead, we get a carefully massaged document designed to convince everyone the Fed knows what it’s doing.
Problem is, the minutes from the last “major” Fed meeting couldn’t accomplish that task. Members of the Fed’s Open Market Committee (FOMC) were all over the map about when they should start raising the fed funds rate from near-zero. And stock traders were all over the map about how to react…
And the Dow will react to the minutes one way or another today, the NYSE closure notwithstanding. A handful of Dow stocks like Microsoft and Cisco trade on the Nasdaq, which is still up and running.
So shortly after noontime, the Dow has given up all of its gains from yesterday and then some — down 217 points, at 17,559. The other major U.S. indexes are down a bit more sharply, about one and a third percent.
Treasury rates are stabilizing, the 10-year note yielding 2.22%. The dollar is pulling back from its run-up yesterday, the dollar index at 96.3.
Gold is staging a modest comeback from yesterday’s losses, up about $7, at $1,162. About yesterday’s losses, Jim Rickards reminds us that’s not unusual in the early stages of a market panic: “People don’t sell what they want; they sell what they can.”
Silver has reclaimed the $15 level. But if you want Silver Eagles, the U.S. Mint has suspended sales to its dealer network for two weeks.
“Typically, demand for bullion coins weakens in the summer months,” Coin News reports. “That hasn’t panned out this year.” Sales hit a 10-month low in May — a sluggish enough pace the Mint finally stopped rationing supply at the start of June after 2½ years.
But with silver at five-year lows, demand picked up as soon as the rationing stopped. More than 4.8 million coins exited the Mint’s doors last month… and another 2.6 million during the first week of this month.
We’ve been remiss in acknowledging the most outrageous instance to date of the Wall Street-Washington revolving door: Former Attorney General Eric “Too Big to Jail” Holder is headed back to his old corporate law firm.
Holder first joined Covington & Burling after the Clinton administration rode into the sunset in 2001. Its clients over the years have included all of the Big Four commercial banks — Citi, Bank of America, JPMorgan Chase and Wells Fargo.
The firm’s chairman said Holder’s return has been “a project” of his ever since Holder joined the Obama administration in 2009. Indeed, “when the firm moved to a new building last year,” writes Lee Fang at The Intercept, “it kept an 11th-story corner office reserved for Holder.”
Fang’s article tells us something we didn’t know before: When Holder was deputy attorney general in 1999, he wrote a memo arguing officials should bear in mind the “collateral consequences” of prosecuting corporate crimes.
That puts a new spin on Holder’s infamous remarks to Congress in March 2013: “I am concerned that the size of some of these institutions [banks] becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”
We’ll remind you here the banks weren’t nearly as large in 1999.
“Holder is set to become among the highest-earning partners at the firm,” Fang reports, “with compensation in the seven or eight figures.”
More legal-marijuana quirk: On the heels of our item yesterday about weed accounting for nearly half of the annual increase in Denver’s electricity demand, we see one business has high-tailed it from the Colorado for want of sober workers.
“Half of the sculptors will come in high,” says Marc Brawner, owner of Little Spider Creations — a firm that builds props and sets for haunted houses, museums and amusement parks. “We went through 25 sculptors,” Brawner tells KUSA-TV — at a firm with 47 full-time workers.
The company has relocated to North Myrtle Beach, South Carolina.
“On a more serious note,” says our resident oil field geologist Byron King, “oil and gas executives tell me their worst ‘hiring’ problem is getting candidates who can pass the pee test — in Colorado or elsewhere.”
“Do bail-ins apply to individual checking accounts?” a reader inquires. “Do bail-ins apply to business savings and checking accounts?
“Interesting times we live in.”
The 5: Perhaps we should back up a bit. On Monday, we passed along rumors from the Financial Times about a bail-in for Greek bank depositors, with everything above $8,800 subject to a 30% confiscation.
Yesterday, someone wrote in to ask if brokerage accounts might be affected, and what it might look like in the United States. And now, today’s inquiry.
Again, we emphasize it’s all in the realm of rumor and speculation right now, even in Greece. But it sure seems to be touching a nerve…
“Yes, the European Central Bank is probably maneuvering to force a capitulation in Greece at this point,” a reader writes.
“Currently, Greece reminds me of a renter who won’t pay his rent, can’t pay his rent, never really intended to pay his rent and lied about it when moving in. (I used to run rental housing, if you can’t tell.)
“As to your fulminating hater yesterday who would link you to Goldman Sachs, etc.: I’d guess that with his level of paranoia, he hasn’t ventured outside in years. So don’t worry about him too much — he’d probably get lost (and scared by the traffic) if he ventured out anyway.
“Don’t always agree with you guys, but at least you’re entertaining.”
“All this reminds me of an old joke,” writes another reader about Greece, “that went something like this:
“A man was tossing and turning in bed and could not get to sleep. This went on for hours into the wee hours of the morning. Finally, he got up, went to the phone and called his friend. Bewildered and half-awake now, the friend answered his phone. The voice on the other end said ‘Dave, you know that $10,000 I borrowed from you last year?’
“‘Huh? Yeah, what about it?’
“‘Well, I have been tossing and turning all night and I am broke and I can’t pay it back! There, I’ve said it. Now you can lay awake worrying about it! I’m going to bed again. I think I can sleep now that you know. It’s your problem now.’
“That’s the gist of it anyway, if not a perfect retelling.
“Maybe Pennsylvania CAN open toilet paper stores after all! They can buy up the Greek paper money now and put onto rolls!”
The 5: We love it when readers perform mash-ups of multiple topics we address in these daily missives…
“Thank you for The 5 every day,” writes our final correspondent. “It’s very interesting, and I appreciate the humor.
“But how come you always talk as if all the readers are Americans? Am I the only subscriber from Europe?”
The 5: About nine out of 10 people who receive The 5 are Americans.
Back in April, I had our crack customer service team perform a geographical survey of our readership. It breaks down like this…
United States 90.3%
Canada 4.5%
Australia 1.0%
United Kingdom 0.9%
Rest of the world 3.3%
Readers of The 5 are scattered across 165 countries — including lone readers in Rwanda, Uzbekistan and… Cuba.
Hmmm…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. As we approach virtual press time, we’ll say this much about the NYSE shutdown: The denials have been more abundant this time compared with the Nasdaq in 2013… even if the explanations are still wanting.
NYSE has chimed in with Homeland Security to say there’s no evidence of a cyberattack. In addition, Homeland Security says there’s no connection with whatever glitch grounded all United Airlines flights earlier today.
But there’s still no word when the NYSE will reopen.
We’ll be back to unpack it all tomorrow…
