|Dow||-161.39 to 16,976.81|
|S&P 500||-23.45 to 1,958.12|
|Nasdaq||-62.521 to 4,363.447|
|10-YR Yield||-.073 to 2.454%
|Gold||+19.60 to 1,319.40
|Crude Oil||+2.17 to 103.37|
Just when you thought the Ukraine crisis was settling down, two dramatic developments unfolded in the past 24 hours.
First, and more worrisome, a Malaysian Airlines flight with 295 civilian passengers and crew on board vanished from radar over Ukraine. Early reports suggest it could have been shot down by a surface-to-air missile, and a sophisticated one at that, given the fact it was cruising at 33,000 feet. That’s well beyond what a rogue rebel could have done with a simple shoulder-launched system.
I’m sure we will learn much more in the hours and days ahead, and I don’t want to comment too much on it now before more details are available. But considering that a separate Ukrainian cargo plane had already been downed earlier this week, and U.S. sources suggest that attack came from the Russian side of the border, this dramatically raises the stakes in the region.
Second, on the political front and before the reports of the plane crash, President Obama slapped Vladimir Putin with more severe sanctions targeting multiple Russian companies, Russian officials and the Russian stock and bond markets. Subject to the sanctions are companies including the oil behemoth OAO Rosneft; No. 2 gas firm Novatek; and two major banks, Gazprombank and Vneshekonombank.
The idea behind the new sanctions? Make it more difficult for them to get equity and debt financing from U.S. investors and lenders, while still allowing normal business operations to continue. Exxon Mobil (XOM, Weiss Ratings: B+) has an oil exploration pact with OAO Rosneft in the Arctic, for instance, and that joint venture won’t be eliminated.
Some other, odder sanctions include a provision preventing Americans from buying Kalashnikov rifles from the Russian arms giant that goes by the same name.
“U.S. business groups are clearly concerned about potential economic spillover here at home.”
Why the political escalation all of a sudden? The Obama administration believes Putin hasn’t backed up his more conciliatory talk with concrete action to rein in the eastern Ukrainian separatists. He believes Putin is still providing covert support for the rebels, including personnel and weapons, a conclusion our European allies reportedly share. That means additional moves could emerge from Brussels later this month.
Needless to say, Putin was not amused. He railed at Obama, saying sanctions “Tend to have a boomerang effect, and without a doubt, in this case they have driven Russian-American relations to a dead end, causing very serious damage.”
|The U.S. has slapped new sanctions on Vladimir Putin’s Russia, targeting companies, Russian officials and the Russian stock and bond markets. Reports of a plane crash in the region only intensified the geopolitical worries.|
It’s worth noting the sanctions announcement comes on the heels of news that Russia is going to reopen an espionage hub in Cuba. The facility south of Havana opened in 1967, but was shuttered in 2001 to save money and improve relations with the U.S. So reopening it just underscores how things are rapidly heading south between the U.S. and Russia.
U.S. business groups are clearly concerned about potential economic spillover here at home. And investors aren’t exactly thrilled either. News of the sanctions helped knock stocks for a loop overnight and earlier today, and helped send crude oil prices up by around $2 a barrel at one point. The reports of the plane crash only riled markets further.
The question is how much will all of this intensify market fears? Will it drive oil prices back toward $110 and beyond? Or gold to $1,400? Or the Dow back below support around 16,800?
I’m more sanguine about stocks, because the underlying economic data in the U.S. continues to come in fairly strong (outside of rate-sensitive sectors like housing; more below). But I believe that gold should continue to benefit from the geopolitical tensions and war cycles my colleague Larry Edelson has discussed, and I’m clearly bullish on a wide range of energy stocks. After all, these increasing overseas tensions should only accelerate the ongoing trend toward domestic exploration, production, distribution, and refining.
What about you? What do you think is behind Obama’s decision? Will poking the Russian bear again help the situation by forcing Putin to back down and stop supporting the separatists? Or is it just going to make things worse? Can there be peace again in Ukraine, and if so, when? Let me know at the Money and Markets comments section here.
|OUR READERS SPEAK|
The economy and the merger wave I discussed in the last couple of columns both continue to be hot topics.
Reader George C. weighed in on the cultural implications of a potential Fox-Time Warner mega-merger. He said: “I found the Fox offer more interesting in terms of a conservative versus liberal take. Fox doesn’t worry about CNN because it blows it away. If I am not mistaken, TWC, HBO, and CNN would all be considered liberally bent, and would cringe at a Fox takeover. Personally, I would love it. Might be a huge plus for American culture and integrity.”
But Reader Van R. looked at the deal from a broader, economic standpoint. His take: “Mergers are great for shareholders and management but ultimately lead to fewer jobs for the two firm’s employees. With the farming out of manufacturing to offshore companies and the mergers, it should not be a mystery why there are fewer people employed in America. We seem to value shareholder equity more than we do supporting our society. When no one is employed, who are the consumers that will buy products and drive the economy?”
Speaking of the economy, it’s hard to find a commenter more bearish than Reader Louie. His take: “I take everything that the government or media say with a grain of salt. The plain and simple truth is that this country has been mired in ‘GREATER DEPRESSION NUMBER TWO’ since the 3rd quarter of 1999 … Real wages are at the lowest as a percentage of the national GDP while the real cost of living keeps exploding (been to the grocery store lately or try to pay your medical bills?).
“The only thing that is going up is POVERTY for the 95% of the population while the top 5% reaps any increase. This is the greatest disparity between the rich and poor … This nation’s economy is a great big JOKE!”
Strong opinions all around, no doubt. If you’d like to add your views to the mix, definitely hop on over to the comment section.
|OTHER DEVELOPMENTS OF THE DAY|
We got more earnings news from the likes of financial giant Morgan Stanley (MS, Weiss Ratings: B) and chip bellwether SanDisk (SNDK, Weiss Ratings: A-). Morgan Stanley posted a hefty 90% rise in earnings; at $1.9 billion, or 91 cents a share after adjustments, MS easily topped forecasts for 55 cents per share in adjusted profit. But SanDisk got slammed after it warned of weaker-than-expected sales in the current quarter. Gross margins also failed to live up to expectations.
Some good news, bad news on the jobs front. Initial jobless claims sank another 3,000 to 302,000 in the most recent week. That was the lowest level in seven weeks, and close to the lowest since 2007.
On the other hand, software giant Microsoft (MSFT, Weiss Ratings: A) said it would slash 18,000 jobs over the next year as it integrates Nokia into its business and makes cuts in sales, marketing, and engineering departments. The moves will result in pretax charges of up to $1.6 billion.
What about housing, a sector I’ve said should lag the broader economy? Well, we got a relatively strong home builder confidence figure yesterday. But then today, we got a dismal report on housing starts.
Starts plunged 9.3 percent in June to a seasonally adjusted annual rate of 893,000. That was the lowest since September, and well below economist forecasts. Both single-family and multifamily starts fell, and permit issuance also declined 4.2 percent.
Reminder: You can let me know what you think by putting your comments here.
Until next time,