It’s one of those big news days again, with two key storylines dominating market action.
First, Greece. Remember the “NeverEnding Story”? I watched the movie at a friend’s birthday party when I was 9. I loved everything about it – from the flying dog/dragon Falkor to the fantasy storyline to the well-done (for the early 80s, anyway) special effects.
This NeverEnding Greek Story? Not so much! I doubt I’m alone in wishing the darn thing would finally come to an end one way or another … and it appears most of Europe is on the same page now.
Malta’s Finance Minister Edward Scicluna told Bloomberg: “We have run out of comments and also run out of patience.”
|The Greek crisis never seems to end, but the battle over Obamacare might finally be settled with the Supreme Court ruling.|
Finland’s Finance Minister Alexander Stubb added: “It’s quite the ping-pong back-and-forth … the worst case scenario for now is that we continue this tomorrow.”
Over at the Financial Times, you can find the headline “Creditors issue bailout ultimatum to Greece.” And at USAToday.com, there’s the headline: “Greece faces final ‘take it or leave it’ debt moment.”
If anything, creditor nation demands have gotten even more stringent in the past day or two. They’re looking for more spending cuts, fewer exemptions from Value Added Taxes, and more pension reforms. Greek officials reportedly responded that those would bring “Armageddon” to their country.
Not exactly the kind of thing you’d hear if a deal was closer rather than farther off. It all leads me to believe we are literally a day or two, at most, from the endgame. Either …
Greece caves and accedes to creditor demands, in a way that Prime Minister Alexis Tsipras’ party will support. That would ensure the country stays in the euro for now, even as it wouldn’t prevent us from being back in the same mess a year or two down the road.
Or Greece defaults on its June 30 1.5 billion euro payment to the International Monetary Fund, and its European bailout program expires. That would likely result in capital controls for Greek banks, an exit from the euro currency union, and turmoil across European markets.
I may have enjoyed fairy tale and fantasy stories as a young kid. But I don’t believe in them anymore. And the cold, hard reality is that the NeverEnding Greek Story looks like it won’t end anywhere near as well as the NeverEnding Story did.The second major news item of the day: Obamacare survived its Supreme Court challenge. In a 6-3 vote, the nation’s highest court ruled in the King v. Burwell case that subsidies are permissible in both states that have their own exchanges and states where consumers need to use the federal insurance exchange.
More than 6 million Americans could’ve lost the government tax credits that make Obamacare insurance much more affordable had the vote gone the other way. That, in turn, would’ve led many to cancel their coverage – forcing premiums even higher on remaining customers and ultimately calling the entire program into question.
Obamacare has now survived two Supreme Court challenges, making it much likely to endure. There’s always the chance a future president or Congress could modify the program. But for now, it removes a huge amount of uncertainty for health insurers, hospitals, and other parties.
|“Hospital shares soared on the news.”|
Hospital shares soared on the news, because expanded insurance coverage will bring more patients in the door. It also means fewer bad debts will pile up, since insurers will be covering their bills. It’s also likely good news in the longer term for health insurers, pharmaceutical firms, and medical device makers.
So now it’s your turn to weigh in. Are bond and stock markets destined to tank if Greece gets kicked out of the euro? Is a last-minute deal still possible, and what market impact are you expecting from that? Is Greece a sideshow to the market, and if so, what should we be focusing on instead?
What about the Obamacare ruling? Do you think the Supreme Court did the right thing? Or should the subsidies have been rescinded? Do you have any health care investments that are benefitting from the ruling, or are you considering adding them?
These are weighty issues, and I’d love to hear your thoughts at the Money and Markets website.
My piece on the energy markets yesterday prompted some great debate over at the website. If the bulls prove right, then energy stocks could be a fantastic investment here. But the bears are definitely putting up a fight.
Reader Bill came down on the bearish side, saying: “My family was in the oil business (e&p and gathering) for nearly 100 years. I still have many old friends who have been in it for generations and (as we all did in the ’70s and ’80s) have made a killing on the run-up.
“But as we all knew going in, the boom would be followed by a bust. Now we’ve had the bust. I don’t have a crystal ball, though I would pay a fortune to have one. But the cumulative decades of mine and my friends is that, barring an exogenous shock, the price will go lower and stay there longer than you can ever imagine.”
On the other hand, Reader Jim cited his family’s background as reason for optimism. His take: “The recent flood of new production was made possible with massive amounts of QE cash that is unlikely to be available in the future. The new oil is all very expensive shale, oil sands, and offshore oil.
“While there are certainly unconventional projects that are possible with $60 oil, the boom is over until prices go considerably higher. My family has also been in the production business for many years and I feel the price has at least stabilized here and will be headed higher in the not too distant future.”
There was another great exchange on the timing and depth of the bust cycle online, too. Reader Myron R. said we haven’t seen enough pain yet:
“I live in the Houston area, which is very dependent on the oil industry, and I have not seen the pain we saw in 1986, not as of yet. There has been pain in the service sector, to a degree, but no E&P companies have gone out of business and there are lots of uncompleted wells that are slowly being fracked, completed and coming on line.”
But Reader Oil Guy countered with the following:
“I disagree. You seem to assume that there is no time lag between rig count and production. Look at the history. You will see that it takes six-to-nine months for production to peak after rigs start declining heavily. It amazes me how many of these self-proclaimed experts gloss over this fact time and time again, so it’s understandable why so many are confused.
“The article states that rig counts have declined 28 weeks in a row. That’s about seven months, and what do you know? We’re right in the middle of a recovery from the $40s and $50s. We’ll continue to inch our way up to the $70s and then we can have a talk about how domestic production is creating an oil glut. If you’re an investor, unfortunately you’ve missed out on a lot of strong recoveries on leveraged companies already if you’ve been waiting for production to peak.”
Thanks again for the comments, if only because it means we don’t have to talk about Greece for a little while! Personally, I’m watching the increasing tide of deals in the energy space. That seems like confirmation to me that the “smart money” is starting to get active.
If we get even one mega-deal, like the ones we saw the last time oil prices were depressed, that will likely really open the floodgates. CNBC’s on-air reporters and anchors talked about hearing “murmurs” of deals just this morning … let’s see what it comes to.
In the meantime, keep those comments coming when you have time. Here’s the link.
President Obama got his trade negotiation authority thanks to a Senate vote yesterday. Now, he will need to hammer out the details of the Trans Pacific Partnership with 12 countries as diverse as New Zealand, Chile, Singapore and Japan.
Bond yields have jumped more this quarter than at any time since the “Taper Tantrum” in 2013. But those stubborn bond managers aren’t giving up on their dreams, despite quarterly losses on U.S. Treasuries of around 2% and several billions of dollars in bond outflows.
Guess what: There’s another government investigation of another mega-bank focused on another questionable practice. This time, it’s the Securities and Exchange Commission looking into J.P. Morgan Chase (JPM) and the bank’s sale of investment products. The bank reportedly tried to sell its own proprietary products to high-end clients to boost fees; a settlement of unknown proportions is likely.
So are you as “shocked” as I am to hear about more alleged banker malfeasance? Do you think the bond market has more pain ahead? Let me know your thoughts on these or other stories at the website when you have time.
Until next time,